CVNA Short: Catalysts Favor a Move to the Downside

CVNA is a used car marketplace, which has enjoyed nearly a 7000% rally from lows. The company has turned around and has been a remarkable story, however given the recent earnings announcement selloff, a Gann based analysis favors a bearish trend change at least for now. Although the earnings report beat expectations, this could mark a local top for Carvana, as investors may be speculating that this is the best that Carvana can do revenue wise for now and that increasing growth rates may be hard to sustain.



As we can see here, the price has taken out the key $268.00 price support level aka, it's original 52 week high from Nov 25th. The price as of now is currently $256. The current Gann support levels are as follows: $250 psychological support level and the $256 Trendline Support level. Although we could see a bounce from the trend line and support level, I prefer an extended retracement to the $230 levels for 3 reasons:

1. Today is current day 47 of the rally from the 52 week lows of Jan 3rd. According to typical rally/reaction periods, the trend be shifting (the 45 day rally point is indicated by a red vertical line). So far this is validated by the 52 week daily close high of Feb 18th. Unless we get a move 3 points above this $291 high, we should not be worried about a possible 60-65 day rally.

If a 60-65 day rally is in fact the case, this would mark a top for CVNA at Mar 5th and Mar 10th in that case. (Marked by our red vertical lines)

2. We have a break below the old 52 week high support level of $268

3. We have a lack of strong support until the Gann 50% midpoint between the 52 week highs of Feb 19th and Jan 3rd. This midpoint noted by the horizontal blue line is around $234

STOP LOSS: $271

Set a stop loss around 3 points above the Support/Resistance level of $268 that we mentioned.