Why PayPal Stock Could Forge A Technical Rebound If It Holds This Key Level

PayPal Holdings, Inc PYPL opened more than 5% lower following its second-quarter earnings print on July 29. The online payments company missed on revenues but reported a slightly higher EPS than analysts estimated.

Since July 30, PayPal has been consolidating the sharp drop and has traded sideways between the $270 and $282 levels with $270.67 becoming a key level of support for the stock.  On Tuesday morning, PayPal traded down to the level and bounced slightly.

One option trader decided to buy the dip and at 9:46 a.m., executed a call sweep at the ask of 680 PayPal options with a strike price of $300 expiring on Oct. 15. The trade represented a $234,600 bullish bet for which the trader paid $3.45 per option contract.

See Also: How to Buy PayPal Holdings Inc. Stock Right Now

Why It’s Important: When a sweep order occurs, it indicates the trader wanted to get into a position quickly and is anticipating an imminent large move in stock price. A sweeper pays market price for the call or put option instead of placing a bid, which sweeps the order book of multiple exchanges to fill the order immediately.

These types of option orders are usually made by institutions, and retail investors can find watching for sweepers useful because it indicates “smart money” has entered into a position.

The PayPal Chart: On Tuesday, PayPal opened below a support and resistance level at $276.12 and was unable to immediately regain the level. The eight-day exponential average (EMA) aligns with the upper level of resistance making it more difficult for PayPal’s stock to break up through.

In the sideways consolidation, PayPal has settled into a descending triangle. A descending triangle is considered to be bullish by technical traders who will want to see PayPal break up from the upper trendline of the pattern before the stock meets the apex on Sept. 7.

Paypal has a large gap above between about $289 and $294. Gaps on a chart fill about 90% of the time which indicates it is most likely PayPal will trade back up to fill the gap in the future.

The stock is trading below the eight-day and 21-day EMAs with the eight-day EMA trending below the 21-day, both of which are bearish indicators. PayPal is trading above the 200-day simple moving average, however, which indicates overall sentiment in the stock remains bullish.

• Bulls want to see increasing bullish volume come in and drive PayPal back up above the $276 level. If the stock can regain the level as support it has room to move up and break above the descending trending toward the $282 mark.
• Bears want to see bearish volume knock PayPal down below $270. If PayPal loses the level of support it could revisit $264 before potentially bouncing.

Image by Gerd Altmann from Pixabay