Carmax
Shares of Carmax (KMX) are down more than 15% today after the company reported that theyre’ between a rock and a hard place.
The company released their latest earnings report this morning, showing that their latest quarter’s revenue and earnings were hurt by lower sales volume. At first glance, it feels like something that can be easily remedied… until you consider yesterday’s consumer price index (CPI) report.
The CPI data showed a decline in used car prices for February. That’s good news for buyers but bad for Carmax.
The company has been spending more money building an inventory of cars over the last year, paying those inflated-boosted prices for used vehicles that they obviously plan to flip for a large profits.
That plan obviously has one risk… used car prices begin to fall.
Things may get worsem though. Despite the drop in used car prices, the CPI data indicated that inflation in other areas of the economy has become more “sticky” than expected. That, of course, means that the Federal Reserve may hold to its “higher for longer” interest rate policy.
Higher interest rates will continue to cool the market for loans on used cars – historically known to be insanely high – which will put even more pressure on Carmax over the next three to six months.
The shares have broken through the $70 level on their way to testing their January lows.
But there’s a kicker.
The stock is also breaking below its 20-month moving average. A move below this long-term trendline will put shares back in a long-term bear market.
My technical model targets a move to $50 for shares of the used car retailer over the next six months.
Rivian
Sticking with the auto theme, shares of Rivian (RIVN) are making a critical move today.
Rivian shares have spent the last two months trying to stay above the $10 mark, but the inevitable happened this morning…
Shares of the EV manufacturer dropped below $10, initiating what I refer to as an orchestrated pattern for any stock breaking the same threshold.
We’re always talking about the psychological importance of round numbers, but $10 is its own animal.
A move below $10 often indicates the beginning of a death spiral that ends with a stock finding its true “intrinsic value” somewhere well below $3. In Rivian’s case, the company continues to lose money, suggesting that their “intrinsic value” is below $0.
Today’s break below $10 puts the stock on a crash course with $8, about 16% below current prices.
From there, we’ll see support move the price towards $9, followed by another break lower that will eventually target $6.
We’ll talk before that happens, but for now, the stock is in the hands of the bears.
Full disclosure: I own a short position on Rivian using intermediate-term puts.
American Express
Is there a problem with the luxury brands?
I’ll get into this more tomorrow, but the answer may be “yes.”
Bloomberg reported this morning that almost 3.5% of credit card balances were at least 30 days past due as of the end of December. This data came straight from the Philadelphia Fed, who also indicated that this is the highest past due rate since 2012.
I’ll get deeper into American Express (AXP)’s role as a potential recession indicator, but for now, the stock is breaking below one of its critical short-term trendlines.
AXP shares are cracking below their 50-day moving average. This marks the first time that the stock will trade below that trendline since the market bottom formed in October 2023. At the same time, AXP’s 20-day moving average has shifted into a short-term bearish trend as momentum goes negative on the stock.
The company reports their quarterly earnings results next Friday, putting even more pressure on the stock.
Here’s why…
The technical break increases downside risk for American Express shares. The stock’s next level of technical support sits at $200, about 8% lower than current prices.
Upside potential is limited to $230 to the upside over the short-term, so AXP shares are in a classic higher risk for less reward situation ahead of next Friday’s report.
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.