Has eBay Had Enough?

08/10/06 08:09:33 AM

by Arthur Hill

EBAY is down over 50% this year, but there are signs of support near current levels, and the stock looks ripe for at least an oversold bounce.

Security: EBAY
Position: Accumulate

Three items point to support around 25 on the price chart. First, I drew a falling price channel that extends back to the January 2005 high (Figure 1). The lower trendline is "parallel to" and "based on" the upper trendline, which was drawn first. The lower trendline extends to around 23 this month, and this line marks a potential support area.

Second, there is support from the consolidation that formed at the end of 2003 (gray box). The top of this consolidation and the April 2005 low at 30.78 should have offered support around 30. However, this level failed to hold, and now, the consolidation lows mark potential support.

FIGURE 1: EBAY. Certain signs point to support around 25. First, the falling price channel extending back to January 2005; second, support from the consolidation that formed at the end of 2003 (gray box); and third, the decline over the last 20 months appears to be a very large ABC correction.

Graphic provided by: MetaStock.

Third, the decline over the last 20 months looks like a massive ABC correction. Wave A declined to 30.78 (-48%), wave B advanced to 47.86, and wave C declined to 22.83 (-52%). Wave A is often equal to wave C. The wave C decline is slightly longer than wave A, but both are around 50% and this is close enough.

In addition to the price chart, the 15-period relative strength index (RSI) on the weekly chart became oversold for the first time since 2002. The RSI dipped below 30 in May and again in July–August. This is as oversold as eBay as been in more than four years. The RSI is both oversold and bearish as long as it remains below 30. Look for a move back above 30 to signal an oversold bounce that could produce a move back to the low 30s.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Has eBay Had Enough?

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