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ANDREWS PITCH-FORK


eBay Hints At A Trend Change

02/21/07 09:43:05 AM
by Gary Grosschadl

The stock price hit a two-year low last August. Is it recovering?

Security:   EBAY
Position:   Buy

In the first eight months of 2006, eBay lost more than 50% of its share price, moving down from $48 to $23. Note the doji bottom in August (Figure 1). The small cross of the doji often marks a reversal after a significant rise or fall.


A pitchfork or Andrews line is plotted on this weekly chart, suggesting that there may have been a bullish trend change. Using three significant turning points, the result takes the shape of a bullish-pointing pitchfork. Pitchfork theory holds that the stock price travel between the tines of the fork with an eventual test of the median line (center tine). Should a bear trend ensue, the bottom tine or lower median line would be violated. Until that happens, an uptrend is in effect. The current median line target is near $40. Under super bull conditions, the stock could make its way toward the upper median line (currently 52.50).

FIGURE 1: EBAY, WEEKLY. This chart shows a bullish pitchfork.
Graphic provided by: StockCharts.com.
 
The other main encouraging sign is the move above the ever-relevant 200-period exponential moving average (EMA). The last attempt was repelled late last year, but a second close above this mark occurring now should be more promising. Note the large volume spike several weeks ago that seemed to hint at something developing.

Several indicators are also examined. The directional movement indicator at the top of the chart is assuming a bullish stance with an upsloping average directional movement index (ADX) between the DIs (directional indicators), with the positive (green) +DI being overhead. The moving average convergence/divergence (MACD) shows a compelling pattern of timely buy and sell signals with its crossovers. Currently, it seems to be successfully testing the zero-line. The stochastic oscillator shows a recent bullish turn near the 50 line, while the Chaikin money flow indicator (CMF) shows a bullish swing to positive buying pressure.


Short- to medium-term traders may anticipate a median line target near $40, especially if the 200-day EMA now acts as support going forward. The fly in the ointment could be a test of the lower median line, should this stab above the 200-day EMA be once again thwarted.



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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Date: 02/22/07Rank: 5Comment: 
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