EBay Inc (NASDAQ:EBAY) shares continue to outperform the broader stock market for the year-to-date — a somewhat unlikely occurrence considering the overall sentiment toward eBay amid its midyear spinoff.
Meanwhile, after a couple of weeks of sideways trading, EBAY stock looks ripe to break higher still from a constructively bullish technical formation. Active investors could look to pounce on this opportunity, which also has very well-defined risk.
On July 20, eBay officially split off its digital payment service PayPal Holdings Inc (NASDAQ:PYPL) after pressure from activist investor Carl Icahn nearly one year ago. While many worried about eBay’s business once PayPal was backed out, EBAY stock seemingly enjoyed the spinoff as it jumped more than 2% on July 20. Then, when eBay reported its latest earnings on July 16, the company beat analyst expectations and saw 7% top-line growth year-over-year.
Following the spinoff of PayPal, ratings agency Fitch downgraded eBay to a BBB credit rating, but that didn’t seem to bother investors much.
EBAY Stock Charts
Jumping over to the charts, we see that through a longer-term lens, EBAY stock in May accomplished a major technical breakout that pushed it past a line of resistance that had been in place since late 2004.
Like any breakout that has longer-term potential, the move in EBAY stock since May was preceded by a multiyear consolidation phase (blue box) that curled up the stock below its 2004 lows around the $25 area. After a final retest of the lower end of this range in October of last year, eBay staged a sharp V-shaped reversal, which set the stage for the breakout we saw in May. From this longer-term time frame, a retest of the $25 area eventually is possible … but that is not the time frame I am concerned with at the moment.
On the daily chart, we see that after EBAY stock rallied on July 20 following the spinoff of PayPal, the stock quickly settled into a tight sideways pattern that has a constructive look to it. Specifically, market technicians refer to this type of pattern as a bull flag or bullish wedge pattern, which has a good tendency to resolve higher.
This two-week consolidation phase has in the meantime allowed the stock’s 21-day simple moving average (yellow line) to catch up with price, and thus could act as support, or at least a good support reference line for active investors and traders to use.
My base case is that EBAY stock resolves higher, which could set up a trade upon a push past the $28.70 area toward the $30 mark. The beauty of this setup is that should the stock break lower, below the 21-day moving average and the $28 area, a trade to the short side could unfold with a price target near $26.50.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
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