eBay (EBAY)
9/17/07 Update

I wanted to update our outlook on EBAY, whose wave pattern has changed significantly enough from the original Wave Watch in May, but which we nonetheless still consider a sell candidate.  Also, and if in fact Relative Strength is shifting away from the NDX as we discussed in the this week's EMO, then we think it should tend to have a negative impact on this stock.  

EBAY's 2006 lows coincide with those of the NDX-SPX Ratio in August 2006, and its entire recovery pattern is on the verge of tracing out an 11th wave, which is also bearish.  This 11th wave is a Wave C, which should probably have another high remaining for completion.  The high could occur at either the 38 or 40 level.  The internal wave count suggests the 38 area, and this level also represents the .618 Fibonacci retracement of the decline that unfolded between Waves (B) and (C) last year.  That said, Wave C could still push towards the 40 area, which represents the 50% Fibonacci retracement of the decline from Wave (5) to Wave (C).  You may therefore want to wait and see if either of these highs develop before committing to a short or Put play (the latter always our preferred).  A break below 35 would tend to confirm an end to the Wave (X) rally that has unfolded for the past 13 months, which would be further supported by an eventual break below 32.  Downside targets still remain the same as previously discussed.

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