eBay Battles The 200-Day Moving Average

05/02/08 01:04:42 PM

by Arthur Hill

After a surge in March 2008, eBay consolidated around its 200-day moving average in April, and a consolidation breakout would signal a continuation higher.

Security: EBAY
Position: Hold

Figure 1 shows EBAY surging above the 200-day moving average in early April and then pulling back over the last few weeks. Even though the first breakout attempt was met with resistance, this consolidation could still be bullish. The pattern looks like a falling flag, which is typical for a short correction. eBay is finding support from the rising 50-day moving average, and a move above 32 would trigger a bullish flag breakout.

FIGURE 1: EBAY, DAILY. Here, eBay is surging above the 200-day moving average in early April and then pulling back over the next few weeks.

Graphic provided by: TeleChart2007.

Upside volume looks strong. The March surge occurred with above-average volume and the stock edged higher with strong volume two days ago (blue ovals). In addition, on-balance volume (OBV) has been working its way higher the last few weeks and hit a new high this week. Volume is leading price to the upside, and this favors a breakout.

FIGURE 2: EBAY, DAILY. The March surge occurred with above-average volume and the stock edged higher with strong volume.

Graphic provided by: TeleChart2007.

Even though eBay is holding its 50-day and OBV is impressive, short-term momentum has yet to turn around. The bottom indicator window shows the moving average convergence/divergence (MACD) trading below its signal line (nine-day exponential moving average). The MACD also edged into negative territory over the last few days. Momentum favors the bears as long as the MACD remains in negative territory and below its signal line. Traders can look for the MACD to move above both to confirm a breakout at 32 in the stock. This would be bullish and target further strength toward the upper 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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