It’s a Different Manheim "Steamrolling" this Holiday Season

There’s a toxic mix of data that may be getting ready to “steamroll” the used car retail stocks.

Names like Carvana (CVNA) and Carmax (KMX) perked to life in the last week as speculative buying found its way to these names. But does it make sense to buy these stocks now?

The short answer is “NO.” Here’s why…

Two weeks ago, the Manheim Used Car Index showed that used car prices continued their decline as consumer demand for autos continues to soften.

To make matters worse, reports are now suggesting that the end of the United Autoworker’s strike may put even more pressure on used car sales as the “Big Three” – GM, Ford, and Stellantis (formerly Fiat Chrysler) - try to ramp-up production and sales to start 2024 on a strong foot.

To make things even worse… interest rates on used car loans remain elevated. Rates for loans start above 7% for credit scores of 750 and higher and can go above 20% for the lowest credit scores.

The combination of lower inventory prices, lower demand, and higher rates are three strikes against auto resellers.

Let’s turn the headlines into trades.

As mentioned, Carvana and Carmax shares have ridden a short-term wave of speculative buying. That’s likely to change as investors see any sign of potential weakness on the short-term horizon.

Knowing that the market loves to trade round numbers, I’m watching the following levels.

CVNA – Any break below $33.50 is likely to see the stock move to $30 in a matter of less than a week.

KMX – A break below $66 will draw sellers into the market causing shares to drop back to short-term support at $60.

About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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