Shares of online payments company PayPal (NASDAQ:PYPL) rallied close to 30%, along with the bid in the broader equity market over the past couple of weeks. After this strong run, however, Paypal stock is approaching some serious technical overhead resistance on the charts.
As I have continuously pointed out in this column over the past few weeks, bear market rallies can be some of the sharpest. They make it difficult even for the bears to make money in down markets. As such, it is crucially important not to sell or short into the hole or chase stocks higher at the upper end of their ranges on bear market rallies.
The strategy I have found to work in volatile bear markets is to exercise patience, keep emotions at bay, and sell/short at the upper end of ranges and buy/cover at the lower end of trading ranges.
For some perspective let’s look at the charts.
Paypal Stock Charts
Here we see that PYPL stock, after a well-defined up-trend, formed a double top (marginal higher high versus the summer 2019 highs if you look close enough) in February, which by March led to a break of the lower end of the longer term range as marked by the blue parallels.
The sharp bounce-back of recent weeks has now brought Paypal stock back to the lower end of the aforementioned up-trend. There is potential technical resistance here for sure, but also a psychological resistance. Investors who bought the January/February rally are likely to start selling down some of their positions. Their losses are now not as bad as they were a couple of weeks ago.
On the daily chart we see that the nearly 30% rally over the past couple of weeks now has the stock not only firmly up against the lower end of the aforementioned multi-year up-trend, but also very near a confluence of the stock’s 50-, 100- and 200-day simple moving averages.
My take is that the stock finds resistance. Before ultimately heading higher again, it will first pass through lower levels.
Trading PYPL
Active investors and traders could look to sell short Paypal stock in the $105 – $108 area with a first downside target at $99, followed by a possible second downside target around $95.
Any further significant rally from here, particularly one that closes PYPL stock above $112 on a daily closing basis, would be a stop loss signal for now.
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