Ebay (EBAY) stock rallied nicely Thursday on the back of rumors about a potential PayPal spinoff, helping to further a strengthen a stock that has been on recovery road since June. Now, this bullish reversal move could push EBAY stock in position to move to new all-time highs in coming weeks or months.
About 30 minutes into the trading day Thursday, EBAY shares began to climb rapidly as rumors about a potential PayPal spinoff made the rounds. Ebay did respond to the rumors, saying that its job is to maximize shareholder value, and in that regard it is weighing all options in regards to PayPal.
In other words, Ebay neither confirmed nor denied the rumors, but the fact that it didn’t deny the rumors kept the stock afloat near the upper range of the day.
Why would eBay spin off its PayPal business, which is well known to be a cash cow for the company? One of the more obvious reasons would be to unlock the value of PayPal, which likely would be valued even more highly as a separately traded entity. (Alternatively, eBay might have an easier time finding potential acquirers for PayPal by making it a separately traded entity.)
Either way, the rumor was welcomed by investors, who bid the stock higher to the tune of 4.66% on a blast of volume. The stock usually sees around 12 million shares traded per day, but on Thursday more than 50 million shares traded hands.
EBAY Stock Charts
On the multiyear weekly chart, we note that during its March-June selloff, EBAY stock merely retraced back to the lower end of its trading range, which has been in place since November 2012. Ebay also held its 2009 uptrend, and through that lens, it’s still consolidating its steep 2012-early 2013 rally in a constructive manner.
On the daily chart, note that absent from the breakout-fakeout rally in February, EBAY stock has traded within the confines of what could be a massive bull flag pattern. However, the big rally might have set the stage for a move back toward the $60 area.
From April to June, EBAY looked like it was tracing out a big topping pattern refereed to as a head-and-shoulders formation. However, the sharp bounce off the June lows topped off with Thursday’s rally now looks to have reversed the bearish pattern into a potentially bullish one.
Some of the most bullish moves can happen when big bearish pattern turn bullish.
Active investors and traders can now consider either buying EBAY stock on a break above Thursday’s intraday highs for a move toward $60, or give the stock some time to consolidate and, upon successful consolidation, buy when shares resume Thursday’s advances.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.