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DOUBLE BOTTOMS


Is It Time To Buy eBay?

03/16/09 09:45:59 AM
by Koos van der Merwe

The stock market has moved up strongly the past four days. Many investors believe that the move up is a correction in the bear market, but is it?

Security:   eBay
Position:   Accumulate

The market does appear to be bottoming. Many stocks are starting to form double bottoms and suggesting that they could be a healthy buy. eBay is one of them. On March 11, at a company-held meeting, eBay shared with investors a road map of its growth plans through 2011. The company provided details of its strategies to drive leadership in its two core businesses — its PayPal global online payments business and its ecommerce marketplace.

FIGURE 1: EBAY, MONTHLY. This chart shows how the stock has fallen from a high of $59.21 in December 2004 to its current low of $9.91.
Graphic provided by: AdvancedGET.
 
Figure 1 shows how eBay has fallen from a high of $59.21 in December 2004 to its present low of $9.91. The support line suggests that it could drop lower, but the relative strength index (RSI) is close to giving a buy signal. If $9.91 is truly the low, then we can expect a correction to anyone of the Fibonacci levels shown on the chart. Note too how volume has fallen as the price dropped, another sign of strength.

FIGURE 2: EBAY, DAILY. A double bottom could have formed, suggesting a rise.
Graphic provided by: AdvancedGET.
 
Figure 2 is a daily chart, and shows that a double bottom could have formed, suggesting a rise. The resistance line drawn does suggest a target of $12.73 before we should buy the stock. The RSI has once again given a buy signal, but the two earlier false buy signals put its effectiveness in doubt. The volume has also fallen, though not by much, suggesting a degree of weakness.

To assist in decision-making, I have included the JM internal band. The JM band is a 15-period simple moving average offset by 2% positive and 2% negative. A buy signal is triggered when the stock price breaks above the upper band, and a sell signal is triggered when it breaks below the lower band. As you can see, the share gave a buy signal on March 11.

The pundits tell us that when everyone else is nervous and selling their stocks, that is the time to buy over a diversified portfolio. eBay could be one of those that should be held in that portfolio, and at present levels, it looks very attractive.





Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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