Carvana Co (NYSE:CVNA) stock recently dipped 2.2% to $227.97, influenced by sector peer CarMax’s (KMX) impressive third-quarter earnings report. This marks Carvana’s third consecutive loss, with a 13.5% decline in December. However, historical data suggests this pullback may present a compelling buying opportunity, as the online used car retailer’s shares are nearing a historically bullish trendline.
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Historical Data Suggests a Positive Outlook for Carvana Stock
According to quantitative analysis by Schaeffer’s Senior Quantitative Analyst Rocky White, CVNA is currently trading close to its 50-day moving average. This analysis considers instances where the stock traded above the 50-day moving average at least 80% of the time over the preceding two months and closed above the trendline in eight out of the ten sessions prior to approaching the moving average.
Over the past three years, seven similar instances have occurred. Following these signals, Carvana stock saw positive returns one month later in 86% of cases, with an average gain of 23.3%. A similar surge would significantly boost the stock’s already impressive 328.2% year-to-date performance, potentially pushing it to its highest level since December 2021.
Analyst Sentiment and Short Interest Indicate Potential for Further Upside
Despite Carvana’s substantial gains in 2024, analyst sentiment remains largely neutral. Of the 19 analysts covering CVNA, 11 currently maintain a “hold” rating. This suggests a potential for upgrades, which could further propel the stock price.
Furthermore, a significant short interest in Carvana stock, with 13.5 million shares sold short (representing 10.8% of the available float), could contribute to a short squeeze. Increased optimism among analysts might compel short sellers to cover their positions, driving the price higher.
Favorable Volatility Environment for Options Traders
Carvana’s Schaeffer’s Volatility Index (SVI) currently stands at 51%, placing it in the low 9th percentile of its annual range. This indicates that options traders are anticipating relatively low volatility. However, Carvana’s Schaeffer’s Volatility Scorecard (SVS) of 80 out of 100 suggests that the stock has historically outperformed these volatility expectations, creating potential opportunities for options traders.
Conclusion: A Potential Turning Point for Carvana Stock
The convergence of Carvana’s proximity to a historically bullish trendline, coupled with neutral analyst sentiment, high short interest, and a favorable volatility environment, suggests a potential turning point for the stock. While past performance is not indicative of future results, the historical data and current market conditions point to a possible buying opportunity for investors considering CVNA.
