CVNA Stock Breaks Out, Implying Further Gains Are on the Horizon

Carvana stock
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CVNA Stock: Expecting an Accelerated Move Toward Higher Prices

Volatility in the stock market has finally subsided from its elevated levels, so investors can now breathe a sigh of relief. The violent swings characterized by high volatility are less likely to occur, which means the markets are now more likely to make a sustained move toward higher prices.

Throughout this corrective price action in the markets, I have kept my eye out for investments that are primed to make moves toward higher prices because I’m still inclined to believe that a bull market is in development. My beliefs are based on a number of factors, but the main reason is that I have yet to come across any glaring indications suggesting that this correction is anything but temporary.

In my search, I have come across Carvana Co (NYSE:CVNA) stock. The reason why I singled out Carvana stock is that the price action on the CVNA stock chart is implying that this investment is currently geared toward higher prices.

The price action involves a completed technical price pattern, which is highlighted on the following Carvana stock chart.

Chart courtesy of StockCharts.com

The completed technical price pattern highlighted on the CVNA stock chart is a cup and handle price pattern.

Cup and handle price patterns are created because a significant level of price resistance prevents the stock price from advancing beyond it.

On the Carvana stock chart, the significant level of price resistance resided at just above $24.00, and the stock’s inability to move beyond this price point resulted in the creation of two distinct troughs. The first trough is larger than the second, and it is these troughs that characterize the cup and handle price pattern.

On April 16, CVNA stock broke above resistance, completing the cup and handle pattern, which now suggests that higher stock prices are on the horizon.

What makes this cup and handle pattern extraordinary is that it was created right on top of an uptrend line.

This uptrend line is highlighted on the following Carvana stock chart.

Chart courtesy of StockCharts.com

The uptrend line highlighted on the CVNA stock chart was created by connecting a series of higher lows, which is part of the quintessential price sequence that defines all bullish trends: a series of higher lows and higher highs.

This uptrend line acts as a dividing line that is currently separating this stock’s current bullish trend from a potentially bearish one. Using the uptrend line is quite easy; as long as CVNA stock is trading above it, I can only assume that a bullish trend is still in development and that higher Carvana stock prices will prevail over time.

The cup and handle price pattern highlighted on the previous chart was developing right on top of this uptrend line, and its completion has created a higher high. This substantiates the notion that a bullish trend is currently in development.

The moving average convergence/divergence (MACD) indicator located in the lower panel is reinforcing the notion that the move toward higher Carvana stock prices will likely accelerate.

MACD is an influential momentum indicator that uses the crossing of a signal line to distinguish whether bullish or bearish momentum is influencing the price action in a stock.

Bullish momentum implies that a stock is geared toward higher stock prices, while bearish momentum implies that a stock is geared toward lower stock prices.

This is incredibly useful information because a stock cannot sustain a move toward higher or lower prices unless the applicable momentum is supporting it.

The entire time that this bullish trend has been in development, the MACD indicator has been in bullish alignment, supporting the notion that there was momentum creating an environment ripe for higher stock prices.

There was an attempt to negate the bullish implications suggested by the bullish MACD signal when a bearish cross was briefly generated. The good news is that this bearish signal was quickly averted and the MACD indicator is currently in bullish alignment.

Averting a bearish signal takes a significant amount of strength, and it implies that Carvana stock is inherently strong. Its inability to maintain a bearish signal suggests that CVNA stock is primed to make an accelerated move toward higher prices.

Analyst Take

I am bullish on Carvana stock because a number of technical indications are suggesting that it is likely to make an accelerated move toward higher prices.

Because my bullish view was generated using technical indicators, I will maintain my bullish view until signals are generated that suggest a bullish view is no longer warranted.