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REVERSAL


eBay Coming Off Three-Year Low

08/21/06 07:49:58 AM
by Gary Grosschadl

After peaking in 2005 near $60, EBAY slid to $23. Now it's attempting to come off a multiyear low.

Security:   EBAY
Position:   Buy

Note how last May eBay (EBAY) attempted an upleg but was halted at the 50-day exponential moving average (EMA). The spinning top candlestick indicated this bear rally had ended. Now a reliable reversal pattern has launched EBAY into another upleg. After a sizable decline, a bullish engulfing candlestick pattern often heralds a reversal pattern.

The directional movement index (DMI) is showing a bullish stance at the top of the chart. The ideal setup for this indicator often occurs with the average directional movement index (ADX) upsloping above 25 (currently 25.91) and the directional index (DI) in a bullish mode with +DI (bullish power) above -DI (bearish power).

FIGURE 1: EBAY, DAILY. This chart shows reversal attempt for eBay.
Graphic provided by: StockCharts.com.
 
See in Figure 1 that the moving average convergence/divergence (MACD) has crossed over, giving a buy signal. Meanwhile, the relative strength index (RSI) has bullishly risen above its often key area of 50. The only worrisome indication is given by the stochastic oscillator, which is now in overbought territory. A move below the 80 level could signal a coming downleg or consolidation.

Should EBAY hold above the 50-day EMA, several upside targets are indicated. There is previous gap resistance below $32 and then likely stiff resistance near $34. Here, we find the ever-important 200-day EMA and a previous congestion area near $34 (lining up with the spinning top). Should the bulls run strong, then the $40 area could come into play. This may take some time, as reversals and consolidations could be anticipated.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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