(EBAY - Get Report) 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.
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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
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