Shares of PayPal (PYPL) - Get Report were in full pullback mode last week. One day after an impressive third quarter earnings report drove the stock more than 10% higher on extremely heavy trading, PayPal ran out of steam.
After printing a new all-time high last Monday, shares began to fade. By the end of last week, a major support zone was getting a test.
For patient investors, this healthy action is providing a low-risk entry opportunity.
Shortly after PayPal's powerful post-Brexit rally ended, the stock took a very hard hit. This news-inspired breakdown drove shares more than 7% lower before they hit a key support level near $36.50. Patient bulls took advantage of the dip, and by early September, PayPal had put in multiple weekly lows near this important zone. By mid-September, the stock was trading back up near its early 2016 peak and had left what now appears to be a major bottom.
Heading into its latest earnings report, PayPal was set up for a fresh rally leg.
After last week's pullback, PayPal is once again in a very low-risk buy zone. This area includes the stock's September high near the upper band and the May/July highs near the lower band. Also near the lower band is PayPal's powerful Oct. 21 breakout gap.
PayPal investors should consider the stock a buy as it stabilizes in this area. Once the stock regains its footing, a new rally leg could be on the way. On the downside, a close back below the $38.75 level would violate the October low, indicating a more drawn-out bottom is ahead.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.