PayPal shares rise after Paul Singer’s activist fund takes a stake: Here’s what to watch

PayPal Holdings Inc. PYPL jumped more than 11% on Wednesday after a report said by Paul Singer Elliott Management Corp. took a stake in the company.

The stock may also have reacted positively to a bull flag pattern that developed between July 13 and Tuesday.

The bull flag pattern is created with a strong higher rise forming the pole, which is then followed by a consolidation pattern that pulls the stock lower back into a channel with parallel lines or into a squeeze triangle pattern.

  • For bearish traders, the “trend is your friend” (until it isn’t) and the stock may continue to fall into the next channel for a short time. Aggressive traders may decide to short the security at the upper trendline and exit the trade at the lower trendline.
  • Bullish traders will want to watch a break of the upper falling trendline of the flag formation, on high volume, for entry. When a security breaks out of a bull flag pattern, the measured upward movement is equal to the length of the pole and should be added to the lowest price in the flag.

A bullish flag is canceled when a stock closes on a trading day below the lower trendline of the flag pattern or if the flag falls more than 50% down the length of the pole.

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The PayPal chart: PayPal ended its bull flag on Tuesday. Wednesday’s sharp rise confirmed that the stock is also trading in an uptrend on the daily chart. The most recent confirmed high low was printed on Tuesday at $76.71, and the most recent confirmed high low was formed at $84.51 on July 22.

  • The bull flag and subsequent uptrend was a likely scenario because between June 13 and July 13, PayPal had developed a bullish divergence on its chart. A bullish divergence occurs when a stock makes a series of lower lows but its Relative Strength Index (RSI) makes a series of higher lows. A rising RSI indicates that the bullish momentum is increasing.
  • If PayPal closes the trading day near its high price for the day, the stock will print a bullish hammer candlestick. This could indicate that higher prices will return on Thursday. The second most likely scenario is that PayPal will print an inside bar pattern to consolidate Wednesday’s rise, which would tip higher for Friday’s price action.
  • Eventually, PayPal will need to trade sideways or lower, to print another higher low, which could offer bullish traders not already in position a solid entry point.
  • PayPal has upper resistance at $86.81 and $94.50 and lower support at $82.07 and $77.36.

See also: PayPal stock soars after Elliott stake build report

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