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Internets Inching Down

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As the broader indices continue to hover around their opening lows, the Internet Index (INX.X) continues to inch closer to its April low.

Internet Index Daily Chart

The Internet Index has been sliding for 7 days, and is down another 2.06% today. That puts the sector within 6 points of its April low. The directional movement indicator (ADX), which measures the strength of the trend, has been rising since June, and a reading of 43 suggests the downtrend is strong. The name Directional Movement is a bit of a misnomer since the indicator does not give directional clues, and only tells us how strong the trend is. If the trend is up and the ADX is rising, the up trend is strong. If the trend is down, and the ADX is rising, the downtrend is strong. Basically, a rising ADX suggests that a trend following strategy would work best, and a flat or falling ADX suggests using a stochastic or other trading range tools.

eBay Daily Chart

The whole point of this update was to alert readers that eBay had broken support at $59, but since I've gone off on this little ADX rant, I'm going to stick with it. When the ADX begins to move up from below 20, it can be a sign that trend is developing. eBay did just that in April, and as the ADX climbed to 30 the stock moved from $30 to $70. The ADX then turned down at the beginning of June, suggesting the trend was coming to an end. eBay did manage to climb $5 higher after than, but has since fallen into the trading range that the ADX predicted. Now that eBay has lost support at $59, could a downtrend be developing? The ADX is starting to turn up, but until it breaks 20 the trend is still weak.

Jeffrey Canavan
Assistant Analyst

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