CVNA Stock: Anticipating a Move Toward Higher Stock Prices
Just as I begin to believe that the volatile conditions that persisted in the first quarter have finally subsided, a piece of market-moving news hits the news wires, reminding me that these conditions have not completely abated. The recent catalyst that sent the markets into a tailspin is political turmoil out of Europe that caused the euro to extend its losses and Italian bonds to rise.
It is safe to say that market conditions are still turbulent, but we cannot forget that even in this environment, there is always a bull market somewhere.
A bull market currently exists in the small-cap space, as the Russell 2000 index has gone on to forge a new all-time high. If a broad-based group can perform this well in a turbulent market, it suggests that this group is inherently strong and likely to lead the market going forward.
Sticking with the theme of small-cap stocks, I am focusing on Carvana Co (NYSE:CVNA) stock, because I believe this small-cap stock is only moments away from making a dramatic move toward higher CVNA stock prices.
These beliefs are based on a number of technical indications.
The following Carvana stock chart illustrates a technical price that I am currently watching develop because I believe that once this pattern is resolved, it will determine the next directional move CVNA stock is likely to make.
Chart courtesy of StockCharts.com
The technical price pattern in development on the CVNA stock chart is a symmetrical triangle.
Symmetrical triangles develop when the price action is characterized by a sequence of higher lows and lower highs. Connecting this sequence of higher lows and lower highs creates two converging trend lines, which capture this price pattern.
These trend lines are very important because they pinpoint where price support and price resistance reside. These levels are important because, in order to complete the pattern, the Carvana stock price needs to either break above resistance or break below support. Once this is accomplished, the Carvana stock price is likely to continue proceeding in that direction.
I am particularly fond of triangle patterns because they are known for their powerful breakouts. The power generated by this pattern is created by the contraction of space between price support and resistance. This contraction of space causes energy to build within the pattern. Once the pattern is resolved, the stored energy is released and a powerful move usually follows.
If this pattern is going to resolve itself by breaking out above resistance, this feat will coincide with a bullish MACD signal.
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 valuable information because Carvana stock cannot sustain a move in either direction unless the applicable momentum is supporting it. So if the symmetrical triangle is going to resolve itself in a bullish manner, this feat will coincide with a bullish MACD cross. The signal lines that create this indicator are currently converging, and a move toward higher prices will create a bullish cross.
From a different vantage point, the symmetrical triangle has been developing on top of a much larger technical price pattern, magnifying its implications.
This different vantage point 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 out above resistance, completing the cup-and-handle pattern. This complete price pattern suggests that much higher stock prices are on the horizon.
After a brief surge toward higher prices, CVNA stock has returned to test this significant level of price resistance. This type of price action is called a backtest and it serves to reaffirm that the original break above resistance was legitimate, while simultaneously establishing this price point as a new significant level of price support.
Backtests act like springboards, and once they are completed, higher prices are likely to prevail. This backtest has manifested itself in the form of a triangle, suggesting that once this backtest is complete, a powerful move toward higher prices is likely to follow.
I have the inclination to believe that Carvana stock is primed for an explosive move toward higher prices. These beliefs are based on a number of technical price patterns. This move is obviously predicated on the stock’s ability to advance, and as a result, I am bullish on CVNA stock, with the contingency that the stock price maintains its footing above $24.00.