Say Holdings is a Buy (NASDAQ:AFRM)

Affirm Holdings, Inc. (NASDAQ: AFRM) is a company in the financial sector of the economy that operates in the transaction and payment processing services industry. It’s in the same industry as PayPal Holdings (PYPL) which I wrote about last week. Like the PYPL article, AFRM seems optimistic to me. In this article, I will outline my investment thesis using the technical analysis elements of price action, momentum, volume, and relative strength. I also provide a price target and two stop losses in case my analysis is flawed.

Chart 1 – Weekly AFRM with momentum, volume and relative strength

Price action is the first thing I look at when considering buying a stock. I want to buy stocks that are trending up. These are actions that make a series of higher highs and lower lows. Another price action function I am looking for an upward sloping 30-week exponential moving average (EMA). The 30 week EMA allows me to find the medium and long term trend of the stock. Chart 1 shows that AFRM has made a series of higher lows and highs since the late 2022 low at $8.62. From this low, AFRM rallied to $22.50 and then gave up almost all of its gains when it fell back to $8.80 in May 2023. Notice that AFRM failed to hold above its 30 EMA of weeks tilted during that advance and decline. . From there, AFRM began its upward ascent in earnest. It rose again over the next eight months, making a series of higher highs and lows, reaching a high above $52 at the end of 2023. AFRM then gave back some of those gains while losing its 30-year EMA weeks. While AFRM managed to miss the 30-week EMA during this pullback, it managed to rally above the 30-week EMA. This was an optimistic sign. Then, AFRM had the big candle climb that coincided with its earnings release on August 28th. This large bullish candle has eliminated the downtrend line shown in green. The following week, AFRM gave up some of the previous week’s advance, which is not unusual after such a large advance. Last week, AFRM closed higher after initially falling. AFRM is trading above its 30-week EMA with an upward slope, and its weekly candles were large bullish candles. I like the price action I see in AFRM.

The next thing I want to see for the price is trading above the highs of $52.48 seen at the end of 2023. If the price can reach this level, then AFRM can continue its advance towards $96 per share. This potential price target is based on the difference between the low price of $8.62 at the end of 2022 and the high price of $52.48 at the end of 2023. The difference of $43.88 is added to the high price of $52.48 to give a price target of just over $96.00. This is not a guarantee or a prediction of where the price will go. It is simply a price target based on generally accepted techniques used in technical analysis.

Momentum is the next element I consider when reviewing a stock. The Percentage Price Oscillator (PPO) is the indicator I use to measure momentum. PPO is easy to understand. When the black PPO line is above the red signal line, this is an indication of short-term bearish momentum. Conversely, when the PPO black line is below the red signal line, then the PPO is showing a short-term bearish momentum. Right now, the PPO is showing bullish momentum in the short term. Another way the PPO shows momentum depends on the PPO black line being above or below zero. When the black PPO line has a reading above zero, this is an indication of long-term bullish momentum. Conversely, if the PPO black line has a negative reading, then the PPO shows a long-term bearish momentum. With a reading of 4.227, the PPO shows bullish long-term momentum. I want a stock that is bullish on the long term with momentum. The reason I say long term is because the black PPO line does not normally swing above or below zero. It normally spends a long time above or below zero before changing. Right now, the AFRM shows that momentum is bullish in both the short and long term.

Volume is a factor in my analysis of any stock. I want a stock that is being accumulated by institutional investors. This can be determined by looking at the large black volume bars. This shows that stocks are bought during the advance of a stock for that week. Retail investors don’t buy millions of stocks over a period of several weeks. Looking at the volume panel in chart 1, there have been numerous large black volume bars going back several months. This tells me that institutional investors are still accumulating shares of AFRM. The only reason they would accumulate shares is because they believe AFRM is undervalued at current prices. Volume is bullish in my opinion.

Relative strength is the last technical element I consider when evaluating a stock to buy. I want to own stocks that outperform the SP 500. This is the only way to outperform the major index as an investor. The relative power price line is easy to understand. The line is a price ratio between AFRM and the SP 500 index. When the black line is rising, it means that AFRM is outperforming the major index. When the black line goes down, then AFRM is underperforming the major index. AFRM has generally outperformed the major index since AFRM bottomed in late 2022. AFRM’s relative strength has outperformed the major index for most of 2024, but has recently turned the tide. The relative strength line advanced and even retook the 30-week EMA. Additionally, the relative strength 30-week EMA has moved up, which is also bullish. I like what I see about the relative strength of AFRM.

My analysis could be wrong for several reasons. Earnings could disappoint, interest rates could stay higher for longer, or there could be a geopolitical event that could cause the market to decline. Because this analysis could be wrong, it is important to have a stop loss if you decide to buy AFRM shares. My first stop loss would be just below the low of last week’s candle at $35. If the price got there, I would sell at least some of my shares, knowing that I can always buy back later if the price action improves. Another stop loss could be a close below the 30-week EMA. Again, you can always buy back shares if the price action improves.

In summary, AFRM is a stock that displays bullish price action. It has made a series of higher highs and lows, and is now trading above an upsloping 30-week EMA. Momentum as measured by PPO is bullish in both the short and long term. Institutional investors seem to have been piling up shares of AFRM, which is bullish. The relative strength of the AFRM shows that it has outperformed the SP 500 index and the relative strength line is now above the 30-week EMA with an upward slope. There is a potential price target of $96, but this analysis could be wrong, so it is best to consider a stop loss if you choose to buy shares of AFRM.