EBAY Stock: Acting Accordingly
eBay Inc (NASDAQ:EBAY) stock has been on quite the wild ride this year. At its worst, it was down 21.7% and at its best, EBAY stock was up 20.7%. On December 1, EBAY stock was virtually at the breakeven mark.
2016 was an emotional roller coaster ride EBAY stock and investors. eBay Inc managed to surprise with its earnings and disappoint with its earnings just the same.
It is difficult to say exactly what the the future will bring for EBAY stock investors, but I have found it quite calming and reflective to use price patterns and signals from the the EBAY stock chart as my go-to tool to decide where the price could be heading next. This process is not perfect, but it suits my needs and it is instrumental in defining my level of risk.
EBAY stock is currently testing key levels of support, and these levels of support must hold in order for EBAY stock to have a fighting chance at keeping the bull market intact.
The following EBAY stock chart illustrates the wild ride that was 2016, and the key signals and patterns that were generated this year.
Chart courtesy of StockCharts.com
2016 did not start off well; a sell-off gripped the markets and, by early February, EBAY stock was down 21.7%. It was not until July that EBAY stock finally managed to unwind all of its losses and hit the break-even price on the year. This level had been acting as a level of price resistance, and it had rejected the price on numerous occasions.
In July, this level of resistance was finally shattered when EBAY stock gapped higher after the company announced better-than-expected earnings. This gap is illustrated on the chart above, and it shows the dramatic fashion in which resistance was broken. A price gap of this size, coupled with the fact that it occurred as resistance was broken, indicates that it was a breakaway gap. The key feature of a breakaway gap is that they rarely get filled, and almost always signal that a new trend has started.
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Shortly after this gap up in price, EBAY stock generated a golden cross. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. This signal creates bullish tailwinds, and traders use it to confirm that a bull market is on the horizon.
Shortly after reaching its high for the year, eBay Inc released a disappointing earnings report in October, and this news created another sizable gap on the price chart. Once again, this gap is viewed as a breakaway gap and a new downtrend has developed as a result of it.
This information is important, because this is where the price needs to remain constructive. EBAY stock has just tested the level of support that was a previous level of resistance, and is highlighted as the break-even price for the year.
This break-even price currently coincides with the 200-day moving average, which is the moving average highlighted in red in the chart above. The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When the share price is above the moving average, it is bullish; when the share price is below the moving average, it is bearish.
In order for the price to remain constructive and suggest that a bull market is still intact indicated by the golden cross, EBAY stock will need to remain above both the breakeven trend line and the 200-day moving average.
It is not a coincidence that the price bounced off these levels with such enthusiasm. It was actually expected, because both of these levels of support coincide at one price.
The next step would be for the price to reaffirm the bull market. In order for this to happen, EBAY stock will need to close above the 50-day moving average. This feat won’t be an easy one because this level of resistance currently stands at a price level that coincides with the gap lower in the price.
Bottom Line on EBAY Stock
The possibility is that a bull market in EBAY stock still exists, but the price will still need to do some heavy lifting. Before I can sound the all-clear and get bullish on EBAY stock, I will need the price to break above the resistance highlighted by the 50-day moving average.