Looking for a good short? Check out this setup on Carvana ($CVNA). (May 28, 2019)
CVNA
Let’s talk about Carvana ( NYSE: CVNA ) here and here’s why: I wouldn’t buy this stock unless I was managing the money of somebody who I really didn’t like very much, then I would, I would go all in.
I think this is setting up to be a pretty good short, the liquidity is okay, almost 2 million today, but here’s why: because I like to look for stocks that are wildly overpriced, which this is. Back in February, $30.00, then at one point, $75.00. Great! Good deal; I totally missed the move; I don’t think I have ever owned any of this. Then the stock reverses, tests the 50 and rebounds.
Let’s walk through this, I am kind of setting up this short here. I would imagine this was probably earnings here but I don’t know. I don’t really track the stock but I like this pattern. The stock comes down, tests the 50, boom, and reverses. Buyers come in and push the stock higher. Now the question at this point is, will it go up to a new high because this was a key test of the 50? Institutions are still buying, says Mr. Retail buyer, I am going to buy this stock.
Then this is an issue; now we have a lower high here, back below the 50, now we are in big trouble and here we are now with a little move today. The short setup is real close; it’s a high-flying stock testing a key moving average, passing the test, failing to hit a new high, instead falling back below the test so we have a lower low. So I guess you could say that is the setup, though, I would actually put one more thing on to the setup and that is a return.
What I am struggling with here is, is this part of the setup or is this the trigger? I would say it’s, again, it is part of the setup; where after a lower low the stock comes back to test the 50-day moving average, we’ll say $65.00, close to $65.00 and then stalls. I am not looking for it to do that, I am just not looking for it to do that, so it stalls. And if it starts to turn down at all, boom, that’s your trigger.
And so you short the stock, short the heck out of it, you short it up here. And then because you are shorting it so close to the 50-day moving average you can also put a buy stop very, very tight so you are really trading with precision. A breakdown; weak rally; a further breakdown and a weaker rally. Rollover, bam! Short and then ride this thing like that. Bam! Short, oh crap I got stopped out. That’s the trade it could go either way.
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