U.S. car dealership CarMax (KMX) hit a new high at the end of June, coming off strong quarterly earnings, and it seems as the temperatures are rising in most of the U.S., so are KMX’s price targets. Traders who missed the ride earlier in the summer shouldn’t worry; the technicals are telling us that KMX looks good for at least another 15% before August arrives.
At the July 9 close, Profit Scanner powered by Recognia identified a bullish pennant pattern on CarMax’s chart, which could take KMX stock from its current levels around $52 to an upside target range of $61.75 to $63.75.
Volume is important when patterns emerged, and the bullish Pennant occurred on more than 2.4 million shares of KMX traded. What’s more is that CarMax’s bullish Pennant is expected to resolve in just 13 trading days, or approximately by the end of July.
A Pennant tells traders that a stock’s price appears to be resuming a sharp rally after a brief pause. The bullish Pennant pattern develops during an active market rally, representing a temporary period of indecision before running again higher.
For those who follow the charts, Thursday’s pullback may be offering a discounted entry for KMX stock. But CarMax is not immune to summer volatility, so traders may wish to wait on establishing positions until KMX closes above its current resistance at $53.67 for additional confirmation of the uptrend.
And be mindful that support doesn’t appear until play until $44.30, so traders with a more conservative risk tolerance should consider a tighter stop loss, which Profit Scanner suggests as a close below $50.62.
Profit Scanner does not make recommendations for correlating options trades on the stock patterns it identifies, but a quick look at CarMax’s option sheet shows the August line has relatively low open interest. That coupled with the summertime swings in price and volume suggests traders may be wiser to buy the shares outright, as the average trading volume for KMX is hearty at about 1.8 million daily.
Of course, those with an appetite for speculation could consider a wildly “Vegas” trade in the KMX July 52.50 Calls, which have tumbled almost 80 cents in price overnight. They expire in just about a week’s time, so it’s a trade that’s only suitable for money you can afford (and perhaps even expect) to lose.
But at the current ask of 58 cents, if CarMax stock makes a quick recovery, traders could reasonably double their money in the calls. Of course, they could also reasonably lose their money, so keep that in mind before establishing any options positions.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.
