eBay is staged to break out of a nearly 15 month consolidation for the second time in the last two years. As depicted above, eBay has repeated the same consolidation pattern from 2011/12. Between duration (450+ days), trading range (~$9), and a sequence of 5 corresponding reaction lows and highs to form a narrowing pennant (to mention just a few), the two periods of consolidation are remarkably similar.
Similar to the final pattern leading to the breakout in Mid-Feb 2012, eBay found support at its 100sma this past November on its fifth reaction low. Prices have since rebounded, consolidating in the upper range of the channel, and have closed above the 50sma during the past two weekly sessions. The body of the latest candlestick now rests flush with the upper trend line (or just below, depending on where you place it) – see Feb 6, 2012 weekly bar. The recent upturn is confirmed by strong volume and a positive inflow of money. Bullish wedge forming over the last 12 days. A close above 55.65 would signal a break out of the consolidation.
As usual, the longer the pattern, the more significant the breakout. Targets are based on the 1, 1.68, 2.68, and 3.618 FIB retracement levels of the 15 month channel. Previous breakout in February 2012 followed this pattern nicely.
Current stop at $53 – just below 50wma ($53.3). Opt to raise stop as price action develops.
I am long 2015 calls as of three days ago.
Comments
simbha
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Appreciate if you can revisit EBAY and provide TA after Internet FDN in serious trouble....
DavideG
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Hi Shankar – Per your request I posted a new chart this morning. My apologies that I forgot to respond here. In regards to FDN, as I’m sure you’re aware, it has a significant portion of its assets in momentum names like FB, NFLX, AMZN, and PCLN, which have each plummeted as much as 20 percent recently following a huge run-up in 2013. Given its subdued performance in 2013, eBay doesn’t quite fit in with this category of momentum stocks and as a result shouldn’t be subject to the same type of downside risk going forward (at least in my opinion). You are absolutely right to point to some potentially worrisome indicators in the stock market currently though. Something to certainly watch.
simbha
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Thank you very much about you taking time to respond. Yes, i did check the ebay chart you posted.