Trading Fintech Stocks

Financial Technology (Fintech) refers to the technologies used and applied in the financial services sector. During the last decade,  due to technological innovations, fintech firms are disrupting traditional financial services sectors in retail banking, investment, mobile payments, loans, fund-raising and asset management. Fintech is also changing customer behavior and expectations as they are now able to access data and information anywhere and everywhere. 

Fintech Domain

According to research firm CB Insights, fintech startups in North America received more than $17.5 billion in funding that is valued at more than $84 billion in 2016-2017 dollars. 

Fintech innovation is rapidly expanding in open banking, insurance technology, robo-advisors, cybersecurity, blockchain technologies, and cryptocurrencies and digital cash. Mobile payments, crowd-funding and money-transfer services are revolutionizing the small business startup landscape regarding how small companies start and run globally. 

Fintech is beginning its wave of disruption, yet it is in the nascent stage. There are many fintech publicly traded companies in the United States; GlobalX FintTech exchange-traded fund (FINX) is a leading ETF that seeks to invest in companies on the leading edge of the emerging financial technology sector. 

Fintech Stock Chart Patterns

Harmonic trading is based on the premise that patterns repeat themselves, and the symmetry can be exploited to define the geometric and harmonic relationships between price and time-swings using Fibonacci ratios. Harmonic price movements produce symmetric rallies and decline to give traders an advantage to determine the key turning points (pivots) and well-defined and repeatable chart patterns. One of the simplest and most universal chart patterns is the ABC pattern (see “The ABC Chart Pattern: Symmetry, Harmonics & Patterns,” Modern Trader, September 2017). 

“Credit crisis” (below) shows an ABC bearish pattern in Visa Inc. (V). Visa has been rising since June 2010 and went from a low of $16 to a high of $126 by January 2018, when Visa experienced a retracement and formed a key pivot (A) outside the Fibonacci Band at $126.88. Visa also traded below the mid-Fibonacci band to form “B” ($111.02) and another pivot “C” above the mid-Fibonacci band at $125.20. After forming an ABC bearish pattern, Visa closed below the entry level of $122.79 to signal a short trade with a stop level above $125.30. The target levels are $115 and $109.

Head & Shoulders Pattern 

One of the most popular chart patterns in market analysis is the Head and Shoulders (H&S) pattern. The H&S pattern forms near market tops in an established sideways to an up trending or bullish market. The H&S patterns are reversal patterns as they reverse its prior uptrend and follow a bearish or a downtrend from its breakdown. These patterns are signified by three successive peaks resembling two shoulders on both sides and a head in the middle. The head is the largest of the three peaks.

Paypal Inc. (PYPL) is currently forming a H&S pattern with the left shoulder at $79.39 and the right shoulder at $82.17. The pattern’s head is formed at the peak of $86.32. H&S patterns are only valid when price closes below the neckline at $71.63 with increased volume. If price breaks below the neckline, a short is signaled in PYPL with price targets of $62 and $57 (see “Heading lower,” below).

Parabolic Arc Pattern 

Parabolic Arc chart patterns form when a steep rise in prices is caused by irrational buying and intense speculation. Parabolic Arc patterns are rare, but they are reliable and are generated in mega bull trends (see “How to trade Parabolic Arc patterns,” Modern Trader, November 2016). These patterns trend, gradually making higher highs and lower lows in the beginning stages, but can be volatile in the exhaustion and reversal stages. Irrational buying from the public generates a strong rally to push prices vertically, followed by a steep sell-off. It captures what traders call blow-off tops. Examples of these market types are the Nasdaq bull market top of 2000 (retraced 80%) and gold prices from 2011 (retraced 62%). 

Equifax Inc. (EFX) has been in a steep Parabolic Arc uptrend since 2008, rising from a low of $20 to a high of $147 by September 2017 (see “Getting pricey up here,” left). Parabolic Arc patterns are relatively difficult to trade as they may experience a few false breakdowns. EFX did experience a 35% move in September 2017, but has since regained half of that ground and may be still subject to the Parabolic Arc. Most Parabolic Arc patterns are expected to retrace 62% to 79% of the prior range.