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How to Trade Pinterest and PayPal After M&A No-Go

Last week, reports speculated that PayPal would acquire Pinterest. Now that the idea has been put to rest, how do we trade these two stocks?

Last week, Pinterest  (PINS) - Get Pinterest, Inc. Class A Report shares were ripping higher and PayPal  (PYPL) - Get PayPal Holdings Inc Report stock was under pressure on reports that the latter was looking to acquire the former.

The fact that no one was denying those rumors — despite PayPal stock taking a 10% beating in two days — added to the conviction that a deal may indeed take place.

Then Pinterest bulls woke up to “Merger Monday” news the opposite of what they were hoping for.

Reports said payment-tech company was no longer pursuing Pinterest.

While off its highs, PayPal stock is up 4% on the news, while Pinterest, which is off its session low, is still down about 13%. Let’s see how the charts look for both stocks.

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Trading Pinterest Stock

Daily chart of Pinterest stock.

Daily chart of Pinterest stock.

Near the end of July, Pinterest stock plunged on disappointing earnings. It failed to reclaim $61 and began a long and painful downtrend. At one point, though, the 21-week moving average acted as support.

The stock soon found its footing and began trading higher before exploding higher on the M&A reports.

Now it's getting walloped again — and by no means is it receiving any help from Snap’s  (SNAP) - Get Snap, Inc. Class A Report painful earnings report last week. Pinterest stock is back down to this month’s low.

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Ideally, I was looking for a break of the October low near $49 and a reclaim of this level, giving bulls a low-risk low to measure against and ride a long position, even if just for a day.

We didn’t quite get that setup.

If the low does give way, there’s a gap down at $46.19 that’s waiting to be filled. Keep in mind: Social-media giant Facebook  (FB) - Get Facebook, Inc. Class A Report will report Monday night. That could be a make-or-break report for the industry.

On the upside, keep an eye on Pinterest's 21-day and 50-day moving averages. Above these measures and perhaps we can get a gap-fill up to $57.60. Above that could put $60-plus in play.

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Trading PayPal Stock

Daily chart of PayPal stock.

Daily chart of PayPal stock.

When we look at PayPal, the stock was setting up for a nice three-wave “ABC” correction until the Pinterest news gave us a perfectly timed five-wave “ABCDE” correction.

From the “D” leg to the “C” leg, we had a 161.8% downside extension measured to just under $241. It’s not an exact science, but it gave us a rough idea of where PayPal stock may bottom on the decline.

Now with the stock trying to rebound from the lows, this one is fairly straightforward.

If PayPal stock can reclaim the weekly VWAP measure, the 200-day and 50-day moving averages could be back in play, followed by the “D” leg high.

On the downside, a break and close below this month’s low at $239.75 opens the door down to the $225 to $235 area. While admittedly a wide zone to utilize, support has come into play throughout this area all year long.