Is PYPL an Obvious Short?

It sounds like free money: find a struggling stock, wait for it to shoot up into "overbought" territory, and short it right at the top.

The logic makes sense on paper. If a company has been falling for years, a sudden price surge should mean it is stretched too thin and ready to crash back down. PayPal seems like the ultimate test case for this strategy. After falling from nearly $300 in 2021 to the $60s and $70s, it is a prime example of a beaten-down large-cap stock.

So, what happens if you actually run the numbers?

We tested this exact strategy across every single trading day since PayPal went public in July 2015 (about 2,765 trading sessions). Using the standard 14-day Relative Strength Index (RSI), where a score over 70 means a stock is "overbought," here is what eleven years of data revealed.

1. Overbought Signals Are Rare and Fast

First, this setup rarely happens.

• PayPal's daily RSI closed above 70 on only 6.6% of trading days (about one out of every 15 days).
• When it did cross 70, the surge did not last long. Across 60 separate overbought stretches, the average streak lasted just three days (the median was two).
• Half of these surges disappeared within a couple of days, and only four ever lasted longer than two weeks.

If your strategy relies on waiting for a weak stock to stay overbought so you can short it, you will rarely get the chance.

2. Across All of Its History, the Short Looks Pointless

Measuring from the exact day PayPal's RSI crossed above 70, across the whole eleven years:

• Two weeks later: PayPal was higher 54.2% of the time.
• One month later: PayPal was higher 57.6% of the time.

On any random day, PayPal was higher 55.4% of the time after two weeks and 55.5% after a month. So an overbought cross looks like an ordinary day. Taken at face value, the obvious short does nothing.

3. But PayPal Has Not Always Been Weak

That average blends two very different companies. From 2015 to 2021 PayPal ran from about $36 to over $300, and most of its overbought days came on the way up. A 14-day RSI cannot tell a strong stock catching its breath from a weak one bouncing. Of the 60 overbought crosses, 53 happened while PayPal was still up over the prior twelve months, and only 6 came while it was down.

Split the results by that simple filter:

• Up over the past year (53 crosses): One month later the stock was higher 64.2% of the time, averaging +1.7%. The upward move usually continued.
• Down over the past year (6 crosses): Of the five cases old enough to measure, every single one was lower a month later, averaging -10.2%. Two weeks later, only one of the five was still green.

This is the exact short setup the article set out to test. In the regime it was actually examining (a stock already down over the past year), the trade worked every time we can measure. The limitation is how rarely the condition appeared: only six times in eleven years.

The Takeaway: The Intuition to Short is Right, With One Condition