In his first Executive Decision segment of "Mad Money" Tuesday, host Jim Cramer spoke with Jim Hallett, chairman and CEO of KAR Auction Services (KAR) , for a read on the roaring used-car market.
Hallett said his company began transitioning to digital auctions years ago. In 2019, nearly 60% of KAR's business was digital, he said. With the pandemic, KAR made the remaining two to three years' worth of transition in about three weeks, he said.
KAR's digital auction platform is more efficient and safer than the in-person model, Hallett said, and sellers have access to more buyers than ever before. The digital transition, along with the company's acquisition of Backlot Cars for $425 million, puts KAR in a strong position for 2021, he said.
I am not in the market for a used car, but let's check out KAR's charts and indicators.
In this daily bar chart of KAR, below, we can see that prices bounced in early February but stopped at the underside of the declining 200-day moving average line. That was the start of a steep and painful decline to a low in late March and a slightly lower low in early April on a retest. Prices rallied and pulled back several times over the course of the year. The 50-day moving average line was tested and broken several times along the way. The rally since late October seems more consistent and prices are trading above the rising 50-day moving average line and the rising 200-day moving average line.
The On-Balance-Volume (OBV) line made its low in March and did not make a lower low with price in early April. The rise of the OBV line tells us that, for the most part, buyers of KAR have been more aggressive. The OBV made a high in early December and has yet to confirm the recent new high in price. The trend-following Moving Average Convergence Divergence (MACD) oscillator recently turned upward to a fresh outright buy signal.
In this weekly bar chart of KAR, below, we can see a positive-looking picture. Prices are in an uptrend and are trading above the rising 40-week moving average line. The weekly OBV line has been firm but needs to make a new high for the move up to get in gear with the price action. The MACD oscillator is in a bullish alignment above the zero line.
In this daily Point and Figure chart of KAR, below, we can see an upside breakout and a potential $25 price target.
In this weekly Point and Figure chart of KAR, below, we can see a longer-term price target in the $31 area.
Bottom line strategy: I used to see a car auction lot west of Topeka, Kansas, on I-70 heading toward Manhattan (the little apple). It was pretty colorful; I guess it has gone digital. I hope the ranches along I-70 don't go digital, too.
The charts of KAR are positive and pointed higher. Try to buy a dip to $20 risking at least below $18. The price targets for the latter half of 2021 are $25 and then $31.
