Wed. 27 Oct 2021, 10:09am ETBenzinga
In: News, Technicals, Trading Ideas

On Tuesday evening, Benzinga asked its Benzinga Pro community which tickers they’d like analyzed. From the replies, Benzinga selected one ticker for technical analysis.

Pro users Rockit and Hanic_ChiTown wanted to see a technical analysis on PayPal Holdings, Inc (NASDAQ:PYPL). Rockit commented that the whole Pro Lounge is watching the stock and asked for Benzinga to look at how PayPal has reacted to similar situations in the past, when the stock has sold off.

PayPal plummeted over 7% on Oct. 20 when it was announced the company was considering the purchase of Pinterest, Inc (NYSE:PINS) for $39 billion, or $70 per share – a  premium considering Pinterest had closed the previous day’s session at just $55.88.

PayPal issued an update on its website Sunday, Oct. 24, referring to the deal as a “market rumor” and said it's not pursuing an acquisition of Pinterest at this time. When the markets opened on Monday, PayPal gapped up about 6% over Friday’s closing price but immediately sold off on big bearish volume. Traders and investors are likely spooked by the caveat “at this time” and worried PayPal may pay a premium for another acquisition.

See Also: How to Buy PayPal Stock

The PayPal Chart: When PayPal fell on Thursday, following the initial report, it held above a lower descending trendline and a key support level at $254.39. On Friday, PayPal slipped through both the levels, however, and dropped through another support zone at the $249.45 mark.

After a rally to start Monday morning, the stock fell back toward the $243 level by the end of Tuesday’s trading session due to sustained big bearish volume. PayPal will likely need to consolidate the lower prices on low volume and if so, traders can watch to see if the stock sets up an inside bar on Wednesday.

PayPal’s relative strength index has bounced up off the 33% level three times since Sept. 28, but the stock has failed to give bullish traders more than a short-term trade on each bounce. On Tuesday, PayPal’s RSI was turning downward again, which indicates it may hit and bounce near the 33% level again.

PayPal has another key resistance level at $232 and if the stock falls to that level bullish traders will want it to hold as support. PayPal has been trading above the area since March 26 and when the stock tested the area as support on May. 11 it rallied 32% to an all-time high of $310.16. If PayPal were to fall below the level it may act as heavy resistance, however.

PayPal is trading below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The stock is also trading below the 200-day simple moving average, which indicates overall sentiment is bearish.

  • Bullish traders want to see the bearish volume drop off and then for increasing bullish volume to begin to push the stock up, which would indicate a reversal to the upside may be in the cards. Bullish traders can watch for a doji or hammer candle to point toward a trend change. The stockl has resistance above at $249.45 and $254.39.
  • Bears want to see sustained big bearish volume drop PayPal down below $237.80. If the stock can’t hold the level as support, it could revisit the key level at $232.63.