PayPal Holdings Inc: PYPL Stock Is Setting Up to Test the All-Time High
PYPL Stock: Bullish Tailwinds Approaching
PayPal Holdings Inc (NASDAQ:PYPL) stock caught my eye this morning, and for good reason. This ecommerce payment processing platform has done little for investors in terms of performance. PYPL stock was spun off of eBay Inc (NASDAQ:EBAY) on July 6, 2015, and shares opened for trade at $38.00. Thirteen months later, and PayPal stock is trading at $38.83, representing a lackluster return of 2.1%.
There could be a number of reasons that have kept this position from performing. Perhaps investors bought into eBay stock anticipating the spin-off of PayPal stock, and those investors have contained the share price as they liquidate their positions. I could probably speculate further about the lack of performance, but it is not my intention to dwell on the past. On the contrary, I am focusing on this name because I believe an upside surprise may be in the offing.
The following weekly chart illustrates an important development in PYPL stock.
Chart courtesy of StockCharts.com
On the chart, you will notice the lower-panel label “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.
The signal is about to cross in a bullish manner and will signal that momentum has swung in a bullish direction. This signal effectively creates a tailwind that has a tendency to push share prices higher. A test of the all-time highs, and possibly new all-time highs, is not out of the question.
The significance of this signal is magnified, as a weekly scale is used to produce this momentum indicator. Longer-term charts capture long-term trends and are less susceptible to noise that is apparent on shorter-term timescales.
MACD is one of my favorite and most effective tools. I find it wise never to trade against this signal. The momentum indicator is not the only piece of evidence that supports a bullish move. The following chart illustrates the bullish setups in PYPL stock.
Chart courtesy of StockCharts.com
It is not uncommon for patterns to be embedded within one another. The formation highlighted in pink is a bullish setup pattern known to traders as a cup and handle formation. Similarly, the pattern highlighted in blue resembles a symmetrical triangle. Traders use these patterns to identify trends and to set up appropriate trading strategies.
Both of these patterns would break out in a bullish manner if PYPL stock closes above $42.00. It is also important to note that both patterns produce the exact same bullish price objective of $53.00 if the patterns were to break out at this exact moment.
This target would only be an initial primary target for PayPal stock. The reason for my bullishness after the breakout is that there is no resistance above $42.00. Anyone who purchased shares after the spin-off will be holding gains and are less motivated to sell. Such situations can cause explosive upside potential as short-sellers are forced to cover as buy-and-hold investors are reluctant to sell. Compound this event with the fact that equities have a tendency to overshoot rational fundamental valuations, and I have the perfect ingredients for a bullish firestorm in PayPal stock.
The Bottom Line on PYPL Stock
PayPal stock has seen some recent bullish development in the price chart. My bias is currently neutral, as I am awaiting a breakout of price above resistance to confirm that a bull market is indeed in play. The bullish development on the momentum indicator has me leaning toward the bullish camp, but I cannot swing my bias until PYPL stock confirms this premise.