Carvana Co. (NYSE:CVNA) is trading lower on Tuesday. However, there is a chance that the downtrend, which began on October 1, may be about to end. The stock could even reverse and rally.
Carvana is oversold and at a support level. These could be bullish dynamics that set the stage for a move higher. This is why its our Stock of the Day.
As you can see on the chart below, $327 was support in July and August, and it remains support now.
In the stock market, there can be support at a price that has previously been support. It is a common occurrence.
This happens when some of the people who sold their shares while they were at support regret doing so after the price moves higher. Regretful sellers decide to repurchase their shares if they can eventually get them at the same price they were sold for.
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As a result of this, when the stock eventually falls back to the price that was support, they place buy orders. If there are enough of these orders, it can create support at the level again.
Carvana remains oversold. Aggressive and emotional sellers have pushed it below its typical or average range. This will draw buyers into the market because they will be anticipating a reversal or move higher.
Their buying could put upward pressure on the shares.
How To Determine If A Stock Is Oversold
The lower part of the chart is the Commodity Channel Index (CCI). It was originally developed for commodities, but it can also be used with stocks.
If the blue line is below the lower horizontal red line, it indicates oversold conditions.
Some traders prefer to wait for a reversal to begin before taking a position. The last three times the CCI fell below the red line and reversed, turning higher, it was a good time to buy.
As you can see, it just happened again. Carvana may be about to rally.
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