How To Trade eBay's Stock Heading Into Q4 Earnings: Charting The Path Ahead

Shares of eBay, Inc EBAY is set to print its fourth-quarter financial results after the market close on Wednesday. The stock was muted heading into the event, trading near flat to where it closed the trading session on Tuesday.

When the e-commerce giant printed its third-quarter results on Oct. 27, the stock was trading near to its Oct. 22 all-time high of $81.19 but gapped down 7.2% the following day in a bearish reaction.

For the third quarter, eBay reported an adjusted EPS of 90 cents on revenue of $2.5 billion. Both numbers topped consensus analyst estimates of 89 cents and $2.46 billion, respectively.

From a technical analysis perspective, eBay’s stock looks set to fall lower over the coming days but it should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat. Options traders particularly, those who are holding close dated calls or puts, take on extra risk because the intuitions writing the options increase premiums to account for implied volatility.

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The eBay Chart: After reaching its all-time in October, eBay spent the following two days attempting to get bullish follow-through on a run into blue skies but instead printed a bearish triple top near the level and entered into a long-term downtrend with intermittent sideways consolidation patterns.

The downtrend has settled the stock into a falling channel, within two descending parallel trendlines. On Wednesday afternoon, eBay was testing the median line of the pattern as support. The stock has not closed a trading session below the median line since Feb. 3 but if eBay suffers a bearish reaction to its earnings print, it may find further support at the bottom descending trendline of the channel.

A falling channel is considered to be a bearish pattern but when a stock breaks up from the upper trendline it can be a powerful reversal pattern. If eBay receives a bullish reaction to its earnings traders can watch for an upwards break of the pattern on higher-than-average volume to gauge future direction.

eBay’s relative strength index (RSI) is measuring in at about 32% and if the stock falls lower on Thursday, the RSI will become oversold. If this happens, bulls may come in and buy the dip immediately because when an RSI falls below the 30% level it indicates the stock is oversold, which can be a buy signal for technical traders.

The stock is trading below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day, both of which are bearish indicators. eBay is also trading below the 50-day simple moving average, which indicates longer-term sentiment is bearish.

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• Bulls want to see a bullish reaction to earnings bring in large bull volume to break eBay up from the channel, which will cause the stock to regain support at the EMAs. eBay has resistance above at $54.95 and $58.24.
• Bears want to see big bearish volume come in and drop eBay down toward the bottom of the channel, which aligns with an important psychological support level at $50. Before hitting the level, eBay may find support at $52.46.