PayPal Stock: Taking Off
Paypal Holdings Inc (NASDAQ:PYPL) stock has just made a new all-time high and the bullish tailwinds that were prevailing were key in accomplishing this feat. The path of least resistance is now higher, and there is little that gets me more excited than stock that is trading at all-time highs.
My bullishness for Paypal stock has little to do with any fundamental data, as I use price charts as the basis of my analysis. My investment style constitutes using multiple signals from price and chart patterns to confirm one trading premise. This process has helped me in producing systematic trading strategies. Defined triggers, which are dictated by price, have been extremely helpful in removing any emotional biases I may possess as I manage my positions.
I have been patiently waiting for a bullish pattern to complete and confirm my bias on PYPL stock. The completion of this pattern suggests that much higher prices are in the offing, and I am excited to explain where my bullishness stems from.
The following Paypal stock chart illustrates the pattern for which I was awaiting completion.
Chart courtesy of StockCharts.com
The formation on the chart above is a bullish setup pattern known to traders as a cup-and-handle formation. Traders use these setup patterns to identify trends and produce potential price objectives. This pattern was confirmed when the Paypal stock price closed above the blue dotted horizontal resistance line.
The breakout occurred when PYPL stock reported earnings above expectations. This news event caused Paypal stock to gap above resistance and close the trading day up 10.13%. The size of the move accompanied by high volume is the type of characteristic that bullish breakouts are known for.
This event now opens the door toward higher prices. The target price based on the successful completion of this pattern is $52.00, and this target is only an initial primary objective for Paypal stock.
This price move has also created a new all-time high. This event is significant in that there is no overhead resistance. Anyone who has ever purchased shares will now be holding gains, and will be less motivated to sell. Such situations can lead to explosive upside potential as short-sellers are forced to cover.
The following chart illustrates the signal that was already alluding to a bullish resolution of the pattern.
Chart courtesy of StockCharts.com
The focus on the PYPL stock chart above is in the lower panel labeled “MACD.” The moving average convergence/divergence (MACD) is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals. A weekly scale is used in order to see longer-term trends that are less susceptible to noise that proliferates on shorter-term time scales.
The signal crossed in a bullish manner in September, indicating that momentum has swung in a bullish direction. This signal effectively creates a tailwind that has a tendency to push share prices higher. With the bulls in control, this signal was instrumental in suggesting that a breakout was imminent. So it should be no surprise that PYPL stock behaved the way it did after earnings.
PYPL stock is now trading at an all-time high, and a short covering rally could ensue that would drive the share price even higher. Compound this event with the fact that equities have a tendency to overshoot rational fundamental valuations, and the perfect ingredients for a bullish moonshot in Paypal Stock are in play.
The Bottom Line on Paypal Stock
I am bullish on Paypal stock, and the breakout from the cup-and-handle pattern confirms this bias. My bias will remain bullish on PYPL stock for as long as the price chart suggests that a bull market is still in force.