Technicals | Oct 14 2020
Bottom Line 13/10/20
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $65.31 / $55.30 / $47.09
Resistance levels: 96.08
Technical Discussion
Reasons to be bullish:
→ Total value of merchandise sold (GMV) could double to $22b in FY21.
→ The company is heading into multiple new markets at the same time.
→ PayPal in the US has announced a similar product to Afterpay.
→ Has a large consumer and merchant network.
→ The strong balance sheet provides flexibility to step up investment.
→ Broken into new all-time highs.
A potential head & shoulders pattern was taking shape during our last review although it hasn’t proven to be significant. The pattern has been invalidated due to price continuing higher. The trend off the March lows has been nothing short of astounding. Up to today’s high price has gained over 1200%, as buyers continue to fall over themselves to get a piece of the action. Weakness a few weeks was triggered by an announcement. PayPal has introduced a similar product called “Pay in 4”. It’s obviously a big name and triggered some profit-taking in Afterpay ((APT)). However, once again buyers have taken back control.
Although there is no wave count on the chart, we have some good patterns to look at. A parabolic leg higher between March and July was followed by a healthy consolidation. As we often say, nothing goes up in a straight line indefinitely. However, in strong trending stocks like this you often see consolidation patterns as opposed to deeper retracements. The descending triangle as annotated on this chart set the stage for continued strength.
The aforementioned news regarding PayPal has resulted in another continuation pattern forming. On this occasion it appears to be a cup & handle. The cup is locked in, with today’s high attaining blue sky territory. However, the close was of the sessions highs. In an ideal world a short consolidation pattern will now form completing the handle. it should be the precursor for the next leg higher. The risk is that price continues higher immediately without getting the consolidation. More than feasible as buyers continue to scramble to jump on.
Trading Strategy
If you are looking for an exceptionally strong trending stock, APT is worth considering. The strategy is to buy following a push up through today’s high at $96.09. We’d like to see a sideways consolidation form a handle from here, so we’ll refrain from putting forward the protective stop. Use a trailing stop to manage the position. I’ll make a formal recommendation this evening.
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