Watch These Carvana Price Levels as Stock Surges

Carvana (CVNA) shares surged Tuesday following an upgrade from Morgan Stanley, extending the stock’s winning streak to five consecutive sessions.

Analysts at the investment bank said that recent selling in the shares provides an opportunity for investors to gain exposure to a leader in auto retail and fleet fulfillment, adding that the company has the potential to become the Amazon (AMZN) of auto retail.

Carvana shares, which rose nearly 4% to close near $222 on Tuesday, have gained 33% during their five-day rally. The stock is still down 24% from its record high set last month, but it remains 150% higher than its year-ago level, boosted by the company’s improved profitability and efforts to reduce costs.

Below, we break down the technicals on Carvana’s chart and identify crucial price levels worth watching out for.

Trading Range Signals Potential Consolidation

Since setting their late-November peak, Carvana shares have oscillated within a trading range, potentially consolidating before the stock’s next move higher.

More recently, buyers emerged just below the 200-day moving average, with the price closing back above the closely followed indicator last Friday. In another win for the bulls, recent buying has coincided with the relative strength index (RSI) reclaiming the 50 threshold, signaling improving positive price momentum.

Let’s apply technical analysis to identify crucial overhead areas on Carvana’s chart that investors may be eyeing and also locate key support levels worth monitoring during pullbacks.

Crucial Overhead Areas to Watch

The first crucial overhead area to watch sits around $265. The shares could encounter selling pressure in this region near last year’s prominent November swing high and a brief period of consolidation that preceded the stock’s record high.

If Carvana shares rally into blue sky territory, investors can forecast an upside target by using the measuring principle, a technique that analyzes chart patterns to predict future price movements.

When applying the analysis to Carvana’s chart, we calculate the distance of the trading range in points and add that amount to the pattern’s upper trendline. For instance, we add $100 to $265, which projects an upside target in the stock of $365, about 65% above Tuesday’s closing price.

Key Support Levels Worth Monitoring

During pullbacks, investors should keep track of the $165 level. This area on the chart may provide support near recent lows and a minor retracement that formed on the chart in late September last year. A breakdown below this level raises the possibility of a double top in the stock.

Finally, selling below the trading range’s lower trendline could see Carvana shares retrace to around $130. Investors may look for buying opportunities in this location near a trendline that links a series of peaks and troughs on the chart between May and September last year.

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As of the date this article was written, the author does not own any of the above securities.