Shares of Paypal Holdings Inc (NASDAQ:PYPL) closed lower on Tuesday along with the broader stock market as worries over Italy leaving the Eurozone brought about volatility. However PYPL stock only traded lower 0.28%, which is to say that relatively speaking, the stock — as a result of its embedded growth story — continues to hold up better and in my eye is not far away from another leg higher.
Readers of my column over time learn to appreciate and respect the high correlation among stocks as an asset class. This is to say that a broad market sell-off or rally on any given day likely affects most stocks. However, for traders and investors alike, the relative behavior of stocks versus their sectors and industry groups as well as versus the broader market is often times where opportunity lies.
PYPL Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we see that after PYPL stock began to find upside momentum and broke higher in the spring of 2017, it embarked on a steep rally that lasted into late January 2018. The stock then lost its upside momentum along with the broader stock market and thus largely trotted sideways since in what to me look to be a healthy consolidation phase.
In late April, the stock bounced off its yellow 50-week simple moving average and over the past couple of days managed to marginally break out of a multimonth bull flag pattern that ultimately looks to promise plenty further upside for the stock.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that although PYPL stock last week scored a breakout past simple diagonal resistance, the upside momentum so far has not been strong enough. The stock in late April/early May bounced off key technical support around the $71 area made up of horizontal support as well as the red 200-day simple moving average. Given the somewhat steep run since then, the stock now likely needs to consolidate somewhat before a more sustainable next move higher can take hold.
Active traders and investors could look to buy PYPL stock upon a break and hold above $83 with a next upside target at $88. Any strong bearish reversal on a daily closing basis would be a stop loss signal.
Alternatively, one could buy a July $82.50-$87.50 bull call spread.
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