PayPal Holdings, Inc (NASDAQ:PYPL) was trading slightly higher on Monday, athwart the S&P 500, which was trading over 1% lower.
The heavily beaten down financial technology company is set to print its first-quarter earnings on Wednesday after the market close. When PayPal printed its fourth-quarter earnings on Feb. 1 the stock plunged almost 25% the following day.
For the fourth-quarter, PayPal reported an EPS of $1.11, missing the consensus estimate of $1.12 and sales of $6.90 billion, which beat the $6.86 billion estimate.
Although the fourth-quarter print accelerated PayPal’s decline, the stock has been trading in a heavy downtrend since reaching an all-time high of $310.16 on July 26, 2021, but the most recent consistent downtrend began on April 5, when the stock topped out at the $122.83 mark.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify an uptrend with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend and descending longer-term moving averages (such as the 200-day simple moving average) indicating a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend the "trend is your friend" until it’s not and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
- Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high indicating a reversal into an uptrend may be in the cards.
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The PayPal Chart: PayPal’s most recent lower high within its downtrend was printed on April 19 at $104.86 and the most recent confirmed lower low was printed at the $99.14 level the day prior. Monday’s low-of-day may mark the next lower low, but Tuesday’s candle will need to print for confirmation.
- Technical traders may have predicted a bounce would come on Monday because on Friday, PayPal’s relative strength index (RSI) was measuring in at about 26%. When a stock’s RSI reaches or falls below the 30% level, it becomes oversold, which can be a buy signal for technical traders. The stock may bounce higher again on Tuesday to bring the RSI back up above the 30% mark.
- PayPal has two gaps above on its chart, with the first between $139.90 and $170.53 and a second higher gap between the $215.97 and $226.25 range. Gaps on charts fill about 90% of the time, which indicates PayPal will eventually trade up to fill both empty ranges in the future, although it could be quite some time before that happens.
- If PayPal closes the trading session near its high-of-day price, it will print either a bullish Marubozu or a bullish engulfing candlestick, which could indicate higher prices are in the cards for Tuesday. If the stock closes the session with an upper wick, it could indicate the lower low isn’t yet in and PayPal will decline again on Tuesday.
- PayPal has resistance above at $94.50 and $103.72 and support below at $82.07 and $77.36.
See Also: Here's Why Credit Slashed Its Price Target On PayPal
