eBay (EBAY)
12/14/07 Update

I wanted to update where we stood with eBay, which gave its first test of 30 on November 26, and whose larger trend we think still points down.

As with many tech stocks, EBAY garnered some strength from the better performance of the NDX earlier in the Fall.  As I've noted more recently, the RS advantage that the NDX enjoyed over so many months shows all indications of having ended.  For example, Wave C of (X) in EBAY topped on October 10, the same day as the NDX.  As I discussed in the earlier Wave Watch report, it was possible to see EBAY move towards higher resistance at the 40 area prior to completing Wave C, which is in effect what happened.  The advance then unraveled from there, and the stock declined in a 5-wave pattern, as we see in the daily chart just above.  We're counting this as Wave 1 down, with the recovery pattern counted as Wave 2.  The recovery pushed just a little above a 38.2% retracement of the decline, with the possibility it may have topped here.  Without an actual break of the 30.95 low of Nov. 26, the top of Wave 2 is not technically confirmed, so a conservative entry may therefore want to await a full break of this support, with a stop at 33.  Those who don't mind more risk could use a break through 32.50, but should do so knowing that it is possible for the recovery to extend without a full violation of the 30 area.  Current resistance levels are 35.12 and 36.96, so I'd suggest not extending risk beyond this if the stock stages a recovery.  Downside targets remain essentially the same from the earlier projections.  The 30 area has been hit, and assuming it will be broken, lower targets are at 27.43, 25.34, and 22.83, the August 2006 low.  With the current trailing P/E at 277, the stock conceivably can get lower than this intermediate term, and we'll assess the potential for that later.

As always on a short play, I prefer the more limited risk offered by options.   We're looking at the April 2008 $32.50 Put (symbol XBAPZ), currently selling for $2.65 with the Delta at 0.43.  

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