The third pattern in the market that Jim Cramer told viewers told viewers of Mad Money about Tuesday night was the financial tech trade. Anytime Citigroup (C) or JP Morgan Chase (JPM) report news, good or bad, investors sell the banks and instead, snap up shares of fin techs like PayPal (PYPL) and Square (SQ) .
We last looked at PYPL on August 14 and wrote that, "PYPL is still in a major uptrend and we have a higher price target on the weekly Point and Figure chart, but in the short run prices are extended and we are likely to see a period of sideways consolidation before renewed gain. Maintain longs and raise stops to a close below $180."
Prices have indeed traded sideways the past two months but broke below $180 and should have stopped you out. Let's check out the charts of PYPL again.
In this daily bar chart of PYPL, below, we can see that prices have traded in a $170-$210 range and look like they are retreating again from the top end of the range. Prices have traded around the rising 50-day moving average line and soon close back below it. The 200-day moving average line is rising and intersects down around $150.
The trading volume is not showing a bullish pattern and the On-Balance-Volume (OBV) line has moved sideways but may have made a slight new high.
The 12-day price momentum study shows lower highs from August till now and that is a bearish divergence when compared to the price action showing equal highs.
In this weekly bar chart of PYPL, below, we can see that prices may be making a small double top pattern. The pattern will not be complete until we close below $170 - the low between the twin peaks. Meanwhile, prices are above the rising 40-week moving average line.
The weekly OBV line is positive but has yet to make a new high. The 12-week price momentum study in the lower panel shows weaker momentum readings from June to October giving us a larger bearish divergence. This divergence could foreshadow a price correction.
In this Point and Figure chart of PYPL, below, we can see a potential price target of $238 but the chart also needs a trade at $213.80 or higher to refresh the uptrend.
Bottom line strategy: The timing and the indicators of PYPL suggest that this is not the right time for PYPL to break out to new highs. The risk appears to be a move below $170 in the weeks ahead.
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