Your Blueprint for Trading EBAY Earnings Reactions

Online marketplace platform eBay NASDAQ: EBAY reports Q4 2019 earnings after the close on Tuesday, Jan.28, 2020. Consensus analyst expectations are $0.76-earnings per share (EPS) on revenues of $28.11 billion. Investors await more color on the sales of Stub Hub expected at the end of Q1 2020 and further clues of more unwinding of subsidiaries. EBAY is not a very volatile stock due to its large float and relatively price range. However, elevated price volatility and momentum can be expected the morning after earnings, especially if there is a gap beyond the 36.88 to 34.18 clustered fib range. We will review the various price inflection levels and potential under-the-radar qualitative trends that may impact the top and bottom line for EBAY and its sympathy peer stocks.

Macro Context and Influences

The S&P 500 ETF NYSEARCA: SPY is our macro market indicator. The SPY has turned bearish on the daily as the stochastic finally fell under the 80-band. Continued contagion from the Corona virus is hampering market bounces triggering risk-off exposure ahead of the two-day FOMC rate decision on Weds, Jan. 29, 2020. reaction to FOMC rate decision, statement and press conference can have an impact on EBAY price action in the last hour.

Technical Analysis

Utilizing the rifle charts, the monthly stochastic has crossed down with the 5-period moving average (MA) resistance at 36.29 and 15-period MA at 36.15, which is technically a make or break formation. The same formation holds true on the weekly chart with overlapping 5 and 15-period MAs at 35.50, which is around the 35.43 fib. The daily chart also has a make or break hovering around the same fib range. EBAY collapsed on its prior Q3 2019 earnings results and has been relatively contained in a boxed range between 36.60 and 34.50. The monthly market structure low (MSL) buy triggers above 36.55 and stop triggers under 34.40. Additionally, there are fibs just above the boxed range at 34.88 and below at 34.19, which also is a powerful 1.618 fib.

Sympathy Stocks:

EBAY is an online auction and marketplace platform offering new and pre-owned items for sale. Sympathy peer stocks that could react to EBAY earnings reports include the world’s largest online retailer Amazon.com NASDAQ: AMZN. Companies that offer personal, pre-owned and collectible items will likely be impacted the most including: Etsy, Inc. NASDAQ: ETSY, The RealReal, Inc. NASDAQ: REAL and Farfetch Limited NASDAQ: FTCH. Since EBAY Is the first to report of these stocks, it can set a trading template for the sympathy stocks moving forward. For example, if EBAY beats estimates and raises guidance, but sells-off, then the same template materializes heading into sympathy stock earnings reports.

 

Insights:  The much-publicized problems with FedEx NYSE: FDX delivery issues highlighted by Amazon may have impacted EBAY retail sales in December as panicked consumers headed to brick and mortar shops to avoid risking late deliveries in the week before Christmas. While online sales continue to have an upward trajectory, the implementation of nationwide sales taxes comes as a sticker shock to many buyers. While consumers are acclimating to the inevitability of paying sales tax on retail items on Amazon NASDAQ: AMZN, there is a growing buyer’s strike when it comes to paying sales tax on collectibles and pre-owned items. Buyers migrating to alternative services like YouTube and Instagram to conduct online auctions bypassing eBay fees and sales taxes saving up 16-to-20 percent. This under-the-radar trend could surface in the Q4 results and forward guidance.  

Trading Game Plan

All eyes will be on the boxed price range between 36.60 and 34.50 and the fib levels just beyond at 36.88 and 34.19. This is the price envelope heading into the earnings release post-market and the next market open. Nimble reversion traders may opt to trade the gapper upside reversion short-sells at 36.88, 37.50, 38.32 and 39.30. The 39.30 is especially notable since it was the pre-earnings price peak for Q3 2019 release resulting in a dumper. Downside gapper reversion longs can be traded at 34.19, 33.38 and 32.59 fibs. Use the 5 and 1-minute rifle charts for reversion scalping. Make sure to be familiarized with the earnings gapper patterns and their three-parts. The average scalp can range between 0.15 to 0.35 in the opening 20-minutes but will shrink as the day wears on. These reversions are most effective on the first tests in the first 30-minutes of the morning trading session. Be careful about slow grinds that may materialize after the first hour and shift focus to the 15 and 60-minute charts to watch the forest from the trees especially in the last hour.