Hi guys, this is a technical Analysis on Carvana (CVNA) on the 3 Day Timeframe.
We've had a MASSIVE rally in CVNA, from MAY till reaching our current MAJOR RESISTANCE ZONE indicated by the GREEN RECTANGLE with RED borders.
We've reached it and got rejected from it on July 19th. We've made our way back up however and are currently forming a LOWER HIGH. Note however, our current 3 DAY candle closes on the 9th of August. Make sure to pay attention.
Friday we had a 12% sell off, where currently our price action is below the 0.786 FIB Level. If we close below on the 9th, the other FIB levels become more probable to reach. Becoming BUY ZONES and Potential PRICE BOUNCE areas.
Our MASSIVE RALLY occurred due to 2 TA reasons:
1. MASSIVE BULLISH ENGULFING CANDLE that blew past MAJOR REISTANCE TREND LINE from BLOW OFF TOP (BLACK line)
2. GOLDEN CROSS, where the 21 EMA CROSSED ABOVE 50 D SMA
However in my Opinion this rally, is NOT sustainable. Notice how SLOPED it is, indicated by this sharp upward channel in BLACK.
I believe something is going to give, especially now that we hit this MAJOR RESISTANCE RECTANGLE ZONE.
I also believe we have not created strong MARKET STRUCTURE, we just went PARABOLIC. This has weak foundation and is probable for a price correction.
Our direction i believe is to fall to the various TREND lines, MOVING AVERAGES and FIB Zones i drew, put on charts and highlighted, respectively.
Notice the trendline our current PRICE ACTION is resting on, if we BREAK this, look to the LOWER SUPPORT TRENDLINE of the UPSLOPING CHANNEL.
I am also looking to the 0.618 FIB and 0.5 FIB Levels as BUY ZONES and areas we test, especially if we CONFIRM BELOW the 0.786 FIB level.
AND Note: It is also likely that when we TEST the FIB levels as SUPPORT, PRICE can move up. Remember that if we don't reclaim or CONFIRM as SUPPORT ABOVE the previous FIB level we broke down from, it is likely price falls again.
I am also looking at the 21 EMA (ORANGE Moving Average) as another area i believe we may test as SUPPORT in the days to come. I Use this EMA alot to indicate BULL TRENDS and BEARISH TRENDS.
When PRICE is ABOVE = BULLISH, or BELOW = BEARISH.
Another interaction that occurs is that sometimes when stocks move up in PRICE, it usually comes back down to TEST the 21 EMA as SUPPORT.
Which WE HAVE NOT YET SEEN a test of SUPPORT on 21 EMA since we went PARABOLIC. This adds to evidence of WEAK Market Structure.
If & When we TEST IT, we bounce off, thats healthy and sustains the BULL RUN, but IF we breakdown confirming as RESISTANCE, WE can test the GREEN Moving Average, the 50 D Moving Average as SUPPORT.
NOTICE: SUPPORT CONVERGENCE of the 21 EMA, BLACK TREND LINE and the 0.5 FIB level. This area could be an AREA we can have a potential bounce from. When many support zones meet, it becomes a powerful support level.
Also NOTICE: BLACK TREND LINE meets at 0.618 FIB level
EMA will also continue upwards, provided price stays above the EMA.
If all FIB LEVELS FAIL, which is always possible but for now not as PROBABLE, LOOK to the MAJOR SUPPORT RED HORIZONTAL LINE as our life line.
This could be our base for sideway or range bound action. Keeping that to the back of your mind can give you perspective of the possibilities of where PRICE can go.
But lets take it ONE STEP AT A TIME.
Now lets look to the RSI, Notice how we've been hanging around at the OVERBOUGHT ZONE since early JUNE. Longer we stay up it becomes more likely we come down, once we do it indicates SELL OFF. One pattern i like to use is watching how the ORANGE RSI LINE interacts with the Moving Average i added to my RSI. If we CROSS below the Moving Average, it usually indicates that we have SELLING and a DOWN TREND. Notice the PREVIOUS EXAMPLES 'ive highlighted.
Now Notice the STOCH RSI. We are getting close to a BEARISH CROSS below the 80 level, indicating BEAR MOMENTUM and SELL OFF. Also focus in on the BLACK HORIZONTAL LINE, watch for any bounces back up. This could give way to BULLISH Momentum coming back into CVNA.
CONCLUSION:
Cavana has had an explosive run, where in my opinion it is not sustainable for the time being. Especially so that we've hit a MAJOR RESISTANCE ZONE. A pullback is inevitable. Ive highlighted some ZONES and Support convergences that, in my opinion can be areas of POTENTIAL BOUNCES and BUY ZONES to observe. When thinking about price dropping, its important to look at it ONE STEP AT A TIME. Example -> Look to the 0.786 FIB level first, if we close & CONFIRM below, look to the next TREND line or FIB level or other ZONES highlighted above and be level headed. This is ABSOLUTELY NOT A TIME TO BUY in my opinion. Alot of signs show overbought conditions especially in the RSI and STOCH RSI. Wait and observe to see what happens for the next 3 day candle close.
Hope this helped. Please support my ideas and my effort by boosting, following and commenting! Thank you for taking the time to view of work.
Any questions, reach out.
DISCLAIMER: This is not financial advice, i am not a financial advisor. The thoughts expressed in the posts are my opinion and for educational purposes. When trading always spend majority of your time on risk management strategy.
We've had a MASSIVE rally in CVNA, from MAY till reaching our current MAJOR RESISTANCE ZONE indicated by the GREEN RECTANGLE with RED borders.
We've reached it and got rejected from it on July 19th. We've made our way back up however and are currently forming a LOWER HIGH. Note however, our current 3 DAY candle closes on the 9th of August. Make sure to pay attention.
Friday we had a 12% sell off, where currently our price action is below the 0.786 FIB Level. If we close below on the 9th, the other FIB levels become more probable to reach. Becoming BUY ZONES and Potential PRICE BOUNCE areas.
Our MASSIVE RALLY occurred due to 2 TA reasons:
1. MASSIVE BULLISH ENGULFING CANDLE that blew past MAJOR REISTANCE TREND LINE from BLOW OFF TOP (BLACK line)
2. GOLDEN CROSS, where the 21 EMA CROSSED ABOVE 50 D SMA
However in my Opinion this rally, is NOT sustainable. Notice how SLOPED it is, indicated by this sharp upward channel in BLACK.
I believe something is going to give, especially now that we hit this MAJOR RESISTANCE RECTANGLE ZONE.
I also believe we have not created strong MARKET STRUCTURE, we just went PARABOLIC. This has weak foundation and is probable for a price correction.
Our direction i believe is to fall to the various TREND lines, MOVING AVERAGES and FIB Zones i drew, put on charts and highlighted, respectively.
Notice the trendline our current PRICE ACTION is resting on, if we BREAK this, look to the LOWER SUPPORT TRENDLINE of the UPSLOPING CHANNEL.
I am also looking to the 0.618 FIB and 0.5 FIB Levels as BUY ZONES and areas we test, especially if we CONFIRM BELOW the 0.786 FIB level.
AND Note: It is also likely that when we TEST the FIB levels as SUPPORT, PRICE can move up. Remember that if we don't reclaim or CONFIRM as SUPPORT ABOVE the previous FIB level we broke down from, it is likely price falls again.
I am also looking at the 21 EMA (ORANGE Moving Average) as another area i believe we may test as SUPPORT in the days to come. I Use this EMA alot to indicate BULL TRENDS and BEARISH TRENDS.
When PRICE is ABOVE = BULLISH, or BELOW = BEARISH.
Another interaction that occurs is that sometimes when stocks move up in PRICE, it usually comes back down to TEST the 21 EMA as SUPPORT.
Which WE HAVE NOT YET SEEN a test of SUPPORT on 21 EMA since we went PARABOLIC. This adds to evidence of WEAK Market Structure.
If & When we TEST IT, we bounce off, thats healthy and sustains the BULL RUN, but IF we breakdown confirming as RESISTANCE, WE can test the GREEN Moving Average, the 50 D Moving Average as SUPPORT.
NOTICE: SUPPORT CONVERGENCE of the 21 EMA, BLACK TREND LINE and the 0.5 FIB level. This area could be an AREA we can have a potential bounce from. When many support zones meet, it becomes a powerful support level.
Also NOTICE: BLACK TREND LINE meets at 0.618 FIB level
EMA will also continue upwards, provided price stays above the EMA.
If all FIB LEVELS FAIL, which is always possible but for now not as PROBABLE, LOOK to the MAJOR SUPPORT RED HORIZONTAL LINE as our life line.
This could be our base for sideway or range bound action. Keeping that to the back of your mind can give you perspective of the possibilities of where PRICE can go.
But lets take it ONE STEP AT A TIME.
Now lets look to the RSI, Notice how we've been hanging around at the OVERBOUGHT ZONE since early JUNE. Longer we stay up it becomes more likely we come down, once we do it indicates SELL OFF. One pattern i like to use is watching how the ORANGE RSI LINE interacts with the Moving Average i added to my RSI. If we CROSS below the Moving Average, it usually indicates that we have SELLING and a DOWN TREND. Notice the PREVIOUS EXAMPLES 'ive highlighted.
Now Notice the STOCH RSI. We are getting close to a BEARISH CROSS below the 80 level, indicating BEAR MOMENTUM and SELL OFF. Also focus in on the BLACK HORIZONTAL LINE, watch for any bounces back up. This could give way to BULLISH Momentum coming back into CVNA.
CONCLUSION:
Cavana has had an explosive run, where in my opinion it is not sustainable for the time being. Especially so that we've hit a MAJOR RESISTANCE ZONE. A pullback is inevitable. Ive highlighted some ZONES and Support convergences that, in my opinion can be areas of POTENTIAL BOUNCES and BUY ZONES to observe. When thinking about price dropping, its important to look at it ONE STEP AT A TIME. Example -> Look to the 0.786 FIB level first, if we close & CONFIRM below, look to the next TREND line or FIB level or other ZONES highlighted above and be level headed. This is ABSOLUTELY NOT A TIME TO BUY in my opinion. Alot of signs show overbought conditions especially in the RSI and STOCH RSI. Wait and observe to see what happens for the next 3 day candle close.
Hope this helped. Please support my ideas and my effort by boosting, following and commenting! Thank you for taking the time to view of work.
Any questions, reach out.
DISCLAIMER: This is not financial advice, i am not a financial advisor. The thoughts expressed in the posts are my opinion and for educational purposes. When trading always spend majority of your time on risk management strategy.
