Carvana- Low Risk/High Reward Entry
Updated
It's a rare occasion when fundamentals and technicals align, and we might just have a compelling case here. Carvana stands out as one of the most heavily shorted stocks in the market. The company has been in the red for quite some time, and this quarter was no exception, with a loss of $1 per share, falling short of analysts' expectations on both EPS and revenue (they lost more than expected).
Despite these challenges, the company sees a shift in demand, with buyers increasingly returning to online car purchases. The Orange number 1 on chart marks the lowest price at the open on the gap-up day ( $66.48), a +26% jump from the previous night's close. The momentum didn't stop there; the price ran another 20% to hit a daily high of $76, before settling at $69.21.
Here's my strategy:
- Stop: Sell if the price drops below $66.48 (allow some leeway, given the volatility)
- Target: If it trades above $76, we could be looking at an elevator ride up to $150, mirroring its previous ride down from $150 to under $30 a share.
I'm eyeing a 1:2 quick trade risk/reward ratio, but that's a waste and the prospect of a potential short squeeze is tantalizing (yes, I said it!). Opportunities like this are few and far between.
Trade carefully,
OnlyTrade2Win.
Despite these challenges, the company sees a shift in demand, with buyers increasingly returning to online car purchases. The Orange number 1 on chart marks the lowest price at the open on the gap-up day ( $66.48), a +26% jump from the previous night's close. The momentum didn't stop there; the price ran another 20% to hit a daily high of $76, before settling at $69.21.
Here's my strategy:
- Stop: Sell if the price drops below $66.48 (allow some leeway, given the volatility)
- Target: If it trades above $76, we could be looking at an elevator ride up to $150, mirroring its previous ride down from $150 to under $30 a share.
I'm eyeing a 1:2 quick trade risk/reward ratio, but that's a waste and the prospect of a potential short squeeze is tantalizing (yes, I said it!). Opportunities like this are few and far between.
Trade carefully,
OnlyTrade2Win.
Trade active
It's working really nicely, lets see if the short squeeze will really come. Take a look at the Weekly chart
Trade active
added 20% to initial position yesterday morning (March 7, 2024)- I put a bid in @ $76.89 before market opened and got hitTrade active
The market is selling off from the open. Sold the 20% I added on March at $85.52, holding core position.
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bought back the 20% I sold above at $79.53. This is probably not the best entry, yet i know if this thing ticks up, the shorts will get nervous.Trade active
FOMO- i knew i was jumping the gun with buying back 20% at 79.53. yet the idea of missing out on this one, was a lot more painful than the 3 points i "missed":)Comment
The stock is at the top of the range at the same place it had a deep pullback. Be careful- I\if you chase it, be ready for a deep pullback.Trade active
if the broad market continues to pullback/selloff, the stop on CVNA is bellow the February 23 Low 66.45 and my average entry price is 74.46 , if stopped out it will be a 3.2% loss for the account.Mistakes so far:
-1 the 79.53 was definitely jumping the gun for the +20%
-2 what was worse, I did not sell the 20% at 90 as planned. that was the last time i will cancel my offer because of no particular reason, or especially when the "big Idea" start working and i get greedy (they say that if you write your commitments down, there is a 90% greater chance to reach them).
what are your latest mistakes ?
Trade active
Finally sold the 20% from March 11th. The trade is working really nicely because the guidance the company provided last year is actually coming to fruition and we still have a HUGE short interest in this stock. Let's see if can make it to $150...Trade active
CVNA held the lows for the gap up day after its earnings on Feb 24nd. The same concept applies to the gap up after May 1st earnings. If buyers are more aggressive than sellers, they should defend the $111 area ( the low of the gap up day). I'll take profit on half my position if it trades below the low of the gap up day, with some room added for high volatility in this stock.
CVNA still has over 30% short interest. It was over 40% when we entered the trade. So there are a lot more potential buyers that can enter the market at any time. The same thing goes for the sellers:)
Trade active
I took profit on 95% of my position at $110 and am keeping the small amount just to keep track of this one. I noticed that publicly posting my ideas makes me not touch my orders and i am seeing a huge profitability improvement. If you haven't tried posting your ideas publicly, you should. It is an additional level of accountability. And even though my greedy part says "common man, there is more!", I took my profit where i said i would and i'd rather get back in at a good spot vs. let this hugely profitable and publicly documented trade run away:D
Trade active
Do not catch a falling knife. There is a big battle of big money going on in CVNA. So far everything the management of the company told us came true- there is a rebound in used car sales. CVNA is looking to test that $95-93 area where it closed before the last earnings. Lets see if the bears will be able to push it down or they will get trapped. Again:)to recap- i took profit on 95% of my position and am keeping small amount to see if it gets to the $150 area. But the fun part is already behind, unless we hold the $93 area and build some kind of base into the next earnings and the company comes through on sales volumes.
Be careful with this one, there are big bets by big players in both directions and it may get supper volatile.
Comment
The price briefly breached par on June 3,4 and came close to it on June 17th, then strongly rejected that area and we made a new higher high. It's getting closer to the $150 target I was eying in February. Let's see, maybe we get one more buyable deep pullback...Trade closed: target reached
"Opportunities like this are few and far between." This is how the trade started on February 26, 2024.On August 1st, 2024 we found out that the management's prediction from two quarters ago about seeing a huge return of customers to used cars turned out to be true. CVNA reported its earnings today, and they finally made money this quarter.
And the most beautiful part is that this trade had a 1 to 10 risk-reward ratio and ended up 100% in just 5 months.
Thank you!
Trade active
Oh this sell off was such a great gift! First, CVNA showed that buyers are much more aggressive than the sellers. Second, we had a great pull back to buy in the $130 area. Now we just wait and see how much steam it has left...
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