Technical Analysis: PayPal Stock Is All Set for Further Gains

paypal stock
iStock.com/Prykhodov

PYPL Stock: The Next Leg of This Bull Market Has Begun

The month of May has come and gone. If anyone believes that the old adage of selling in May and going away is a good investment strategy, then they are probably sitting on the sidelines, hoping that the market sells off.

I may have some bad news for these folks because it does not seem like the markets want to play along. Instead, I believe that the markets are poised for higher values, which will ultimately frustrate the skeptics.

One of the reasons why I am bullish at this juncture is that the Russell 2000 has recently forged a new all-time high. The Russell 2000 is the small-cap index, and the stocks that make up this group are speculative by nature. If money is flowing into this subgroup, it bodes well for the health and prospects of the markets.

Reinforcing this notion is the Nasdaq index, which has just followed suit with a new all-time closing high.

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Sticking with the theme of a bull market because it is the prudent course of action, I am focusing on Paypal Holdings Inc (NASDAQ:PYPL) because I believe, like the markets, that PYPL stock is poised for further gains.

My beliefs are centered around a number of technical indications suggesting that higher PayPal stock prices are on the horizon.

The first indication that caught my eye was a completed technical price pattern, which is highlighted on the following stock chart.

Chart courtesy of StockCharts.com

The pattern highlighted on the above PYPL stock chart is a descending channel. This pattern is characterized by a series of lower lows and lower highs. If you’re wondering, yes, this is the quintessential characteristic that defines a bearish trend.

Connecting the peaks and troughs that were created by this bearish trend produces two downward-sloping trend lines. These trend lines not only capture the pattern, but also define where respective levels of price resistance and price support reside.

These levels of price support and price resistance are important because, in order to complete the pattern, the stock price needs to either break above price resistance or fall below price support.

On May 31, PYPL stock broke above the trend line that defined price resistance, which completed the pattern. This completed price pattern implies that PayPal stock is now likely to appreciate because the bearish trend has come to an end, opening the door for a new bullish trend to follow.

The notion of higher stock prices is magnified when it is combined with the indicators that are highlighted on the following chart.

Chart courtesy of StockCharts.com

This PYPL stock chart has been annotated in order to highlight an alternating wave structure that has been responsible for creating and sustaining a bullish trend in PayPal stock.

This wave structure consists of impulse waves and consolidation waves.

The waves highlighted in green are impulse waves. Impulse waves define the stage in a bullish trend when a stock sustains a move toward higher prices. The advancing nature of this wave captures the gains that are created within a bullish trend.

The wave highlighted in purple is a consolidation wave. Consolidation waves define the stage in a bullish trend when a stock corrects and refrains from advancing. The corrective nature of this wave is necessary because it creates the conditions so that another wave can follow.

In a bullish trend, impulse waves lead and consolidation waves follow. The descending channel doubles as a consolidation wave, and its completion implies that a sustained move toward higher PYPL stock prices via an impulse wave is now in development.

This notion of higher prices is being supported by the moving average convergence/divergence (MACD) indicator.

MACD is a trend-following momentum indicator that determines whether bullish or bearish momentum is influencing the price action in a stock.

Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices.

The MACD indicator is very influential because a stock cannot sustain a move in either direction unless the appropriate momentum is supporting it. That is why this indicator has the propensity to confirm which wave is in development.

In February 2017, a bullish MACD cross was generated and was followed by higher stock prices via an impulse wave. In January 2018, a bearish MACD cross was generated, and it correctly suggested that a consolidation wave was in development.

The completion of the consolidation wave has coincided with a bullish MACD cross. These indications together reinforce the notion that higher PYPL stock prices are on the horizon.

Analyst Take

I am bullish on PayPal stock. I believe that higher PYPL stock prices are on the horizon because a number of technical indications are suggesting and reinforcing such an exact outcome.