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Ebay’s Choppy Trading Could Continue

But from a longer-term perspective, this recent correction should be a healthy one


Ebay (EBAY), the online auction site and PayPal parent, reported Street-matching second-quarter results yesterday, but got knocked down nearly 7% thanks to disappointing guidance.

The day’s selloff brought EBAY right back into the middle of its year-to-date trading range, which — from a multiyear perspective — doesn’t throw any negative implications into its way for the time being.

The now nearly seven-month-long trading range in eBay comes on the back of a roughly 490% rally off the 2009 lows and thus qualifies as a much-needed consolidation phase. At the same time, this cooling-off period coincides with the stock’s late-2004 highs near the $60 mark, which eventually will be a significant technical area for the stock to push past.

All in all, through the lens of the multiyear chart below, this choppy sideways range between the $50 and $58 levels has a healthy undertone.

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On the daily chart of eBay, we clearly see that Thursday’s post-earnings selloff simply brought the stock from the upper end down into the middle of the aforementioned trading range.

Click to Enlarge

Here, around the $52.60 (200-day simple moving average, red) and $53.70 levels (100-day SMA, blue), EBAY might find some near-term support to bounce. Beyond that, however, given Thursday’s strong so-called breakaway gap, the stock likely has more work to do on the downside.

A first and logical level to look for in this price discovery trip is the bottom end of the range, near $50, which from Thursday’s close is another 4.5%-5% lower. Further speaking for more downside in the stock is Thursday’s volume of a little more than 43 million shares traded — a massive spike relative to the average of around 14 million shares.

In other words, Thursday’s downside reversal in eBay spooked more than a few investors, which could lead to more of them following suit.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.

Article printed from InvestorPlace Media,

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