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ASCENDING TRIANGLES

A Breakout For eBay

04/16/07 09:50:11 AM
by Arthur Hill

Relative strength and a resistance breakout on good volume point to higher prices for eBay.

Security:   EBAY
Position:   Accumulate

As an integral part of the Internet group and a big player on the NASDAQ, the relative strength in EBAY bodes well. The bottom part of Figure 1 shows the price relative (EBAY divided by the NASDAQ). The stock outperforms the index when the price relative rises and underperforms the index when the price relative declines. The price relative was flat during the February–March 2007 and broke resistance in late March (green box). This breakout shows relative strength from EBAY and the breakout preceded the breakout in the stock. EBAY is outperforming the NASDAQ overall, and relative strength bodes well for future performance.

FIGURE 1: EBAY, DAILY. EBAY is outperforming the NASDAQ overall.
Graphic provided by: Telechart 2007.
 
On Figure 1, there are two possible patterns at work: an ascending triangle and a cup-with-handle. The bottom of the cup formed in January, the handle in March, and rim resistance is at 34. The ascending triangle covers the same time frame and is shown with the blue trendlines. The equal highs mark the resistance line and the higher low in March mark the support line. The breakout shows a victory for demand and signals a continuation higher. Regardless of the pattern at work, resistance is the same and the breakout is clear. In addition, it is worth pointing out that upside volume has been outpacing downside volume over the last four weeks, validating the breakout.

FIGURE 2: EBAY, WEEKLY. The stock formed a large falling price channel over the last two years and is on the verge of breaking the upper trendline.
Graphic provided by: Telechart 2007.
 
I am going to use Figure 2, the weekly chart, to identify resistance and set a potential upside target. The stock formed a large falling price channel over the last two years and is on the verge of breaking the upper trendline. Yes, there is still some important resistance in the way, but the resistance breakout on the daily chart points to a breakout on the weekly. The next resistance area is around 45 from the prior highs that formed in the second half of 2006 (gray box). I am going to put my target right in the middle of this zone.


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.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
Mechelen, B2800
Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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Date: 04/17/07Rank: 4Comment: 
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