Affirm Holdings Inc (NASDAQ:AFRM) gapped down almost 4% to start the trading day on Tuesday after falling more than 7% on Monday but by press time, bulls had come in to buy the morning dip.
On Monday, Apple Inc (NASDAQ:AAPL) revealed a competing product to Affirm’s “buy now, pay later” virtual card at its 2022 Worldwide Developers Conference. Apple’s new “Apple Pay Later” product will allow users to make a series of four payments over six weeks without being charged fees.
The news spooked traders and investors of Affirm, as well as the company because Apple's already large userbase could steal customers from Affirm, especially ones who already use Apple’s products.
Affirm has already declined about 86% from its Nov. 8, 2021, all-time high of $176.75 to trade at the $23 dollar level. The downturn may just be the next higher low in Affirm’s uptrend, however, and may have provided traders who aren’t already in a position a solid entry.
An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.
The higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods.
Traders can use moving averages to help identify an uptrend with rising lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend and rising longer-term moving averages (such as the 200-day simple moving average) indicating a long-term uptrend.
A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick. Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.
In an uptrend the "trend is your friend" until it’s not and in an uptrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bullish traders who are already holding a position in a stock can feel confident the uptrend will continue unless the stock makes a lower low. Traders looking to take a position in a stock trading in an uptrend can usually find the safest entry on the higher low.
- Bearish traders can enter the trade on the higher high and exit on the pullback. These traders can also enter when the uptrend breaks and the stock makes a lower low indicating a reversal into a downtrend may be in the cards.
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The Affirm Chart: Affirm reversed course into an uptrend on May 12, when the stock hit an all-time low of $13.64 and printed a double bottom at the level on that day and the trading day prior. Affirm’s most recent higher high was printed on May 31 at $31.08 and the most recent confirmed higher low was formed at the $19.96 mark on May 24.
- If Affirm closes Tuesday’s trading day flat or near its high-of-day, the stock will print a doji or hammer candlestick, respectively, which could indicate the next higher low has formed and the stock will trade higher on Wednesday.
- If the stock closes the trading session near its low of day price, the upper wick could indicate Affirm will trade lower again on Wednesday. In this case, bullish traders will want to see a reversal candlestick print above the $20 level and bearish traders will want to see the stock lose the level as support.
- Affirm has resistance above at $26.06 and $32.29 and support below at $19.96 and $13.64.
