Part 3

In order to help our followers maximize their profitability, we have decided to analyze the performance of some of the biggest companies within the two ETFs (SPY & XLV).

Paypal Inc. (PYPL)

Company Background

Throughout the last 15 years PayPal has established itself as one of the largest online payment solutions providers on the back of its strong product portfolio and two-sided platform that enables it to offer smooth and secure transaction facility to both customers and merchants. PayPal is the largest “bank” in the world with over 305 million active accounts. The company operates as a payment processor for online vendors, auction sites, and many other commercial users, for which it charges a fee in exchange for benefits such as one-click transactions and password memory. PayPal is benefiting from robust growth in total payments volume owing to increasing net new active accounts. Further, strengthening customer engagement on the company’s platform has been a major positive.

Current Position – Financial Performance & Future Growth prospects

PayPal has a remarkably strong brand identity and recognition all around the world as PayPal’s safety and simplicity of transactions and the fact that it’s both brand and technology pioneer have allowed the company to establish itself as the go-to place for transactions online.

One of its newest platforms has been the company’s peer-to-peer payment service, Venmo, which in turn is the key catalyst behind the solid growth in its total payment volume (TPV). Venmo is driving the active accounts base of the company with the aid of strong monetization efforts and robust features.

Additionally, the fast adoption of Venmo, thanks to the unique client base that PayPal possesses, has allowed PayPal to present a serious challenge to their up and coming rival Square. Furthermore, the company offers domestic and international person-to-person payment facilities with the help of PayPal and Xoom products.

One Touch, is another key growth catalyst for PayPal’s accelerating mobile volumes as a result of its robust mobile checkout services, and its overall contribution to the merchant and customer base.

With the aid of these robust products, PayPal continues to gain solid traction in the global online payment market. It allows customers to send payments in more than 200 markets globally. It has connections with financial service providers worldwide. Further, the company supports withdrawal of funds from bank accounts in 56 currencies and holding balances in PayPal accounts in 25 currencies. Additionally, transfer of funds supports more than 100 currencies globally.

Additionally, this San Jose, CA-based company is gaining from strategic acquisitions including Hyperwallet, Braintree and iZettle that are helping it in delivering better payment experience.

Furthermore, PayPal’s growing banking initiatives remain noteworthy. Instant Transfer to bank allows U.S. customers to transfer money to their bank accounts seamlessly within 30 minutes on the back of the company’s partnership with JPMorgan Chase.

In 2019, PayPal generated revenues of $17.8 billion. It earns revenues transactions and other value-added services that accounted for 90.6% and 9.4%, respectively, of 2019 revenues. Further, the company’s primary geographical markets which include United States, the U.K. and Other Countries contributed 53%, 10.5% and 36.5%, respectively, to 2019 revenues.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 6 months taking the price from the March 23rd lows of around $86 to the highs at $212, thus representing an 146% increase in 5 months. The all-time highs were reached in the beginning of September and ever since then, we have seen a volatile roller-coaster price action. An initial correction took the price down with over 18% in less than 2 weeks throughout the first half of September. Then, we saw another sharp appreciation where the price re-tested the all-time highs and the psychological resistance lying there. However, the stock failed to break higher in October and we saw the price dropping sharply in the lead up to the US Presidential Elections. Now, with the elections behind us the stock has made another (3rd) attempt to continue its outstanding bull rally, but it seems that its currently experiencing difficulties, thus threatening to form a Triple Top reversal pattern on the daily chart. Does, this remind you of something? Well, that is exactly what we got from the SPY daily chart – a relatively weaker attempt for a push above the ATH, with two prior strong rejections at the current levels.

We would wait for a short-term pullback towards the $175 and start buying just above the support at $174. Should the price drop further, we would be interested in adding more to our buy positions at the $160 and $145, which would improve our average cost basis. Our first take-profit target would be set at $210, followed by the next target at $225 where we would be fully cashing in our profits.

The stock is currently sitting at the $203 mark after rebounding from the strong diagonal, horizontal and dynamic trendline support around $185. The initial downward correction was anticipated in the lead up to the elections as when there are high levels of uncertainty in the market, then all stocks could become vulnerable. Additionally, lets not forget that PYPL’s stock has already appreciated with the staggering 146% from its March lows, thus these current corrective movements, could very well be considered healthy and necessary for the continuation of the uptrend. However, it is of essential importance to note that if the stock fails to resume its uptrend by pushing to a higher high, then this might create a very strong reversal technical pattern called Triple Top Formation. The neckline of this figure would be around the $175 mark and a potential break there could open up the doors for a much larger decline towards the $145 level.

While we believe that the stock market in the US is currently holding a lot of intrinsic risks – COVID-19, presidential elections, the economic recovery etc. – and that we could be in for a sideways and choppy price action in the coming months, we see the winners continuing to win. We remain cautiously bullish on the PYPL’s stock and believe that any profit-taking corrections and potential large price declines would give us a great opportunity to buy the stock at a good discount and hold it for the long term. This, in turn would give us a chance to maximize our profits to the upside, once the stock resumes its strong uptrend. Furthermore, some of the technical indicators that we are monitoring closely (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) are currently showing that the price might not have enough steam to break the current diagonal trendline resistances that it faces. The exhaustion of the recent up move could be signaling that a potential short-term decline could be just around the corner. Thus, we are not advising our followers to go ahead and start buying the stock right now at its current highs, but to rather wait for a better entry point that we believe will present itself in the coming days and weeks.

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