Short Trade Idea
Enter your short position between 70.79 (Friday’s intra-day low) and 74.15 (the lower band of its horizontal resistance zone).
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Market Index Analysis
- PayPal (PYPL) is a member of the NASDAQ 100, the S&P 100, and the S&P 500.
- All three indices trade near record highs driven by the AI hype, but technical cracks suggest caution ahead.
- The Bull Bear Power Indicator of the NASDAQ 100 shows a negative divergence.
Market Sentiment Analysis
US President Trump announced higher-than-expected tariffs of 30% on key trading partners, the EU and Mexico. It could lead to a 20% blanket tariff on all other countries that did not receive a letter, twice the rate which markets had warmed up to. While markets focused on AI-related stories to climb a wall of worry, they ignored the likely inflationary impact. The situation surrounding the US Fed and the likelihood of Powell not finishing his term should also worry investors.
PayPal Fundamental Analysis
PayPal is a financial technology company focused on mobile and online payments. It has added support for cryptocurrency purchases, operates in 202 markets, has 425M active accounts, and holds accounts in 25 fiat currencies.
So, why am I bearish on PYPL after its significant breakdown?
Gross margins have contracted for years, the balance sheet is not as healthy as it should be, and the latest announcement by JP Morgan to charge FinTech companies for data access will further erode profitability. Other banks could follow and transform the landscape of payment processors in the US. Competition from true cryptocurrency payment processors like Circle, which celebrated its IPO on June 5th, could add to a loss in market share for PayPal. I await their next earnings release and comments regarding this new data fee.
Metric | Value | Verdict |
PE Ratio | 16.04 | Bullish |
PB Ratio | 3.43 | Bearish |
PEG Ratio | 0.96 | Bullish |
Current Ratio | 1.30 | Bearish |
ROIC-WACC Ratio | Positive | Bullish |
PayPal Fundamental Analysis Snapshot
The price-to-earnings (PE) ratio of 16.04 makes PYPL a cheap stock. By comparison, the PE ratio for the S&P 500 is 28.89.
The average analyst price target for PYPL is 81.74. I think this number could come down as analysts digest data fees and their impact on profitability.
PayPal Technical Analysis
Today’s PYPL Signal
- The PYPL D1 chart shows that price broke down below a significant horizontal resistance zone.
- It also shows price action approaching the 38.2% Fibonacci Retracement Fan level with plenty of downside potential for another breakdown.
- The Bull Bear Power Indicator turned bearish following six days of contractions.
- The average trading volumes during selloffs are higher than during advances.
- PYPL corrected as the NASDAQ 100 rallied, a massive bearish sign.
My Call
I am taking a short position in PYPL between 70.79 and 74.15. I believe price action will continue to correct, as markets reevaluate the value proposition of PayPal, despite cheap valuations, which are low for a reason. A sell-off may uncover long-term value for PYPL, but the medium-term could prove challenging for this stock, especially during a market correction.
- PYPL Entry Level: Between 70.79 and 74.15
- PYPL Take Profit: Between 55.85 and 59.46
- PYPL Stop Loss: Between 77.36 and 81.74
- Risk/Reward Ratio: 2.27
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