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WEDGE FORMATIONS


eBay Closing In On Key Retracement

12/27/05 08:15:54 AM
by Arthur Hill

eBay is approaching a key retracement and a potentially bearish wedge is forming.

Security:   EBAY
Position:   Hold

ebay (EBAY) suffered a sharp decline early in 2005 and the current advance looks like a corrective move (Figure 1). There are two types of directional moves: impulsive and corrective. Impulsive moves are in the direction of the trend and corrective moves run counter to that trend. EBAY lost 45% on the January-April 2005 decline, and a move this size can hardly be called corrective. As an impulse move down, the ensuing advance would be deemed corrective and expected to fail below the prior high.

FIGURE 1: EBAY, 2005. EBay suffered a sharp decline early in 2005 and the current advance looks like a corrective move going into 2006.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
There are certain traits to corrective advances, and this move has many of those traits. First, the advance traced out a rising wedge and this pattern is typical for a corrective advance. Second, the move retraced 50-62% of the prior decline, and this is a normal retracement. Third, the accumulation-distribution line is not keeping up and shows signs of distribution within the advance.

The only thing missing is a bearish catalyst to end the current advance. The stock formed a dark cloud pattern in early December (red oval). These are bearish candlestick reversals that require confirmation. The stock declined the next week, but managed to find support and bounce back above 45. This bounce created a support level to watch for early signs of a reversal. A move below 43 would be short-term bearish and target a decline toward support in the upper 30s. Further weakness below 37 would confirm the rising wedge and call for a continuation of the prior decline.



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
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E-mail address: arthurh@tdtrader.com

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Date: 12/27/05Rank: 4Comment: 
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