A consolidation within an uptrend is considered the pause that refreshes. Stocks often become overbought after a sharp advance in a short period of time and need to work off these overbought conditions with a correction. Corrections are of two types: price or time. The stock can decline and retrace a portion of the prior advance or the stock can trade sideways for a period of time. Ebay sports the latter with a sideways consolidation.
EBAY Chart
The chart above shows EBAY surging some 45% from late December to February. The stock was clearly overbought after this move and moved into a sideways trading range. This is a consolidation after an advance (time correction) and this is a bullish continuation pattern. EBAY obliged the bulls with a breakout in mid June and this breakout zone is holding. Notice how broken resistance turned into support and held the last three weeks.
Given the long-term uptrend, fresh new high and active breakout, I would expect higher prices from EBAY in the coming weeks and months. A close below 38 would warrant a re-evaluation.
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Arthur Hill, CMT
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Author, Define the Trend and Trade the Trend
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