Is eBay Setting up for a Break Out?

Published on Tuesday, 31 August 2010 04:56 Written by Christopher Lynn

New York, August 31st (TradersHuddle.com) - Shares of eBay Inc. (NASDAQ:EBAY) closed the trading session at $23.13 placing the price action in a very tight range, given that calculated support is set at $22.37 and the calculated resistance based on an algorithm of peaks and troughs is set at $23.61

eBay Inc. (NASDAQ:EBAY) operates an online auction community. The service is used to buy and sell products and services such as coins, collectibles, computers, memorabilia, stamps and toys, and sporting tickets. eBay also offers, through its subsidiary PayPal, secure online payment services.

eBay's stock price action indicates that both sellers and buyers are materializing very close to each other, which is indicative to a momentum building area, as the stock can resolve by breaking out of the tight range that developed.

Traders wanting to establish a position should place close attention to eBay's price action, as any movement outside its predefined range of $22.37 and $23.61 could grab the attention of momentum buyers, looking for a big movement in the price of the stock. Traders need to be aware that tight range resolution works both ways, hence, a move below support at $22.37 could spark above average selling. A tiered approach can be a good way to approach starting a position in eBay's, by establishing a starter position while the stock is in the tight range, and then adding to the position as it breaks and closes above resistance.