EBAY reports after the close. The stock has generally reacted bullishly to earnings in the past 2 years, rallying on 6 of the last 8 reports. The average move in the last 8 quarters is close to 5%, with options for July implying slightly more than 5% for this report.
I actually like the longer term story in EBAY, primarily because I think the PayPal unit is undervalued as a component of the EBAY holding company. Having said that, the stock is up more than 30% YTD and has encountered significant resistance in the 40-42 level. Here are the charts I’ll be discussing on Talking Numbers today:
The 3 year chart of EBAY illustrates the strong uptrend channel that has existed. The stock has recently touched the upside of the trend channel, which it also did in 2009, 2010, and 2011, all touches that caused the stock to pause its up-move. I think the stock is likely to pause again here.
The 5 year chart of EBAY shows the importance of the $35 and $40 levels. The stock broke out cleanly from $35 earlier this year, and never looked back. The break of the 5 year high around $40 though has been rejected twice now, making a clean break above $40 less likely. Support at $35 is quite strong though, and I would be a buyer at $35 on a pullback, but a seller here close to $40.
My preferred trade on this view would be to sell Aug upside call spreads in EBAY as a way to express the idea that resistance should act to limit the stock’s upside over the next month. However, I am not initiating a trade ahead of earnings because I already have a number of broader bearish bets where I have more conviction over the next month. If anything, I’ll be looking to initiate a bullish structure in the future on EBAY if it sells off to my 35-36 support area.