PayPal Stock Show Signs A Massive Reversal May Be In The Works: What's Next?

PayPal Holdings, Inc PYPL spiked higher on Friday after Josh Brown and Kari Firestone said on CNBC’s "Halftime Report" the stock is a buy at current levels.

Brown went on to say PayPal will transform from a payments service company to a “financial super app” that could provide services from lending and trading to insurance. PayPal has “lost $60 billion in market cap over the past few months,” Brown said, while Firestone finished the segment by saying she believes the stock could be valued as high as $1 trillion in the future.

PayPal has a lot of work to do to reach that market cap, but it does appear the stock may have found a bottom and is set to reverse course.

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The PayPal Chart: PayPal created a bullish double bottom pattern near the $201.56 level on Tuesday and Thursday on the daily chart. On Friday, the stock retested the level as support, which created a triple bottom pattern and bounced up over 3% surpassing Thursday’s high-of-day.

Technical traders may have seen the bounce coming because PayPal’s relative strength index (RSI) has been measuring below 30% for the past five trading days. When a stock’s RSI reaches or exceeds the 30% level it becomes oversold, which can be a buy signal for technical traders.

PayPal has a gap above between $212.40 and $226.25 that was left behind on Nov. 9 when the stock suffered a bearish reaction to its earnings print. Gaps on charts fill about 90% of the time so it’s likely PayPal will trade back up to fill the range in the future.

On Friday afternoon PayPal was printing a bull flag on the hourly chart, which indicates the stock may trade higher into the bell. The pole of the hourly bull flag was created between 9:30 a.m. EST and 11:30 and the flag was forming during the two hours that followed. If the pattern is recognized the measured move is about 4%, which indicates PayPal could run up toward the $215 level late in Friday’s session or early on Monday’s.

PayPal is trading well 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 50-day simple moving averages, which indicates longer-term sentiment is bearish.

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• Bulls want to see big bullish volume come in and push PayPal up over the Nov. 9 high and into the gap. There is resistance above at $213.07 and $218.72.
• Bears want to see big bearish volume come in and push PayPal down below the $201.56 level. Below the area, there is psychological support at $200 and price history support at $192.67.
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