FB Or PYPL: Buy, Sell Or Stand Aside?

Both Facebook FB and Paypal PYPL are tech giants in their own right but as investors, our primary concern is to ask ourselves if we want either stock in our portfolio with no attachment to the brand name.

If you already have both or either stock in your portfolio, then you should have your exit management already clearly thought out and written in your trading plan. The major indices are showing strong signs of having recovered from the seasonal September/October pullbacks and are now printing ATHs. This is a reason in itself to potentially hold for further upside potential. However, there is a significant phase of recovery for both stocks to have to go through. 

Based on the circa 20% decline on FB and circa 25% decline on PYPL in recent weeks, you may have already sold or are considering selling based on say a trailing stoploss (my preference) or some other exit management criteria. 

However, if neither FB nor PYPL are currently in your portfolio, is now the time to be considering either or both of these tech stocks for the portfolio? 

For me, the answer always lies in the charts, as there is no getting away from price action which ultimately is the source of truth. Let's look at the daily timeframe of each. 

Facebook The pullback since the high of September has taken price to around the 200sma, a significant area of support. Price is currently forming a consolidation around this level. 

Paypal Pice has been in a decline since the high of June but the bigger picture shows that price has been trading inside an area of consolidation since the high of February.    

Conclusion FB may have the slightly better set-up of the two as the 200sma is often considered as a source of entry for a pullback strategy. I have been holding both of these stocks since last year but if they were not already in my portfolio, I would stand aside on both of these stocks given the current market structure. Both stocks are displaying sideways markets which are environments I tend to avoid entering new positions. This is because my risk can be tied up in a consolidating market with little to no return when it can be better spent elsewhere. Instead, I prefer entering stocks that have recently broken out from consolidation and are displaying signs of trend. Trending markets are where the profit is made. 

I like to look for stocks that require less work but hand out more profit and the best stocks for that are those that are trending and also printing new ATHs. This forms the foundation of trend following, a proven approach used by the finest traders/investors for decades. 

Zaheer Anwari - Co-founder of Sublime Trading