In his second 'Executive Decision' segment during Wednesday night's Mad Money program, Jim Cramer spoke with Ernie Garcia, chairman and CEO of Carvana Co. (CVNA) , the online auto retailer looking to disrupt the traditional dealership model.
Garcia said car sales have plunged between 50% and 85% since the coronavirus pandemic hit the country. The auto industry has been especially hard hit, he said, since visiting a dealership is how most people still buy their vehicles. But at Carvana, customers can buy online, set up financing and have their car delivered to them.
The stock price of CVNA has bounced back from its March plunge to the downside but the future price action is more important than the past right now. Let's check out the charts and car inventory from the safety of our living room.
In this daily bar chart of CVNA, below, we can see how quickly prices snapped back from their selloff. Prices rebounded above the 50-day and 200-day moving average lines but it looks like that price strength is failing. The slopes of both of these averages have yet to turn positive.
Trading volume has slowed in April compared to March but the daily On-Balance-Volume (OBV) line has soared to a new high for the move up. The strength in the OBV line has not resulted in prices making a new high so we ask the question, "Is the OBV line leading the price action or do we need even stronger and more aggressive buying in CVNA to see prices rise from here?"
The Moving Average Convergence Divergence (MACD) oscillator has come back to the zero line but I am unsure it can push much above the line at this point in time.
In this weekly bar chart of CVNA, below, we can see how much of CVNA's three year rally was given back in March. Prices are trading around the declining 40-week moving average line.
The weekly OBV line shows only a slight improvement and hardly looks like the daily OBV line.
The MACD oscillator is narrowing from below the zero line suggesting we could see a cover shorts buy signal in the weeks ahead. This indicator does not seem to be in a rush to turn positive.
In this daily Point and Figure chart of CVNA, below, we can see a potential upside price target in the $94 area. Not much to write home about.
Bottom line strategy: The $90-$110 area on CVNA looks like it could be significant resistance. While CVNA may have the right business model in this stay at home environment, I believe the macro headwinds of rising unemployment will dampen buyers enthusiasm for the stock. I look for a prolonged sideways trading range for the months ahead.