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TheStreet Open House

5 Big Stocks to Trade for Gains

Stock quotes in this article: EBAY, FMX, FB, CSCO, JPM

eBay

eBay (EBAY) is a name that was in a trend channel but broke out of it at the start of September, when it started consolidating sideways. But here too, there's a technical price setup that points to more upside. For eBay, it's an inverse head and shoulders pattern.

The inverse head and shoulders is probably one of the best-known patterns among would-be traders because of its name and unique appearance. It's formed by three swing lows in a stock's price chart. The outside two, the shoulders, come in at approximately the same level, and they're separated by the head, a lower trough in the pattern. The buy signal comes when the neckline gets broken. eBay's neckline comes in right under $51.

>>9 Consumer Finance Stock Plays to Consider

eBay's setup isn't textbook. Typically, this is a reversal pattern, whereas here we're seeing it come in after a long uptrend. Even so, the inverse pattern indicates exhaustion among sellers, so it's important not to get hamstrung by the textbook definition. This stock is buyable on a move to $51.

Even though the inverse head and shoulders is well known, it's effective: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits that would have been both statistically and economically significant." That makes this price setup worth heeding in shares of EBAY.

eBay was also featured recently in " 5 Stocks Making High-Volume Moves."

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