NEW BEARISH Plays
CarMax Inc. - KMX - close: 55.45 change: -0.57
Stop Loss: 57.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 12, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 1.8 million
New Positions: Yes, see below
The labor market in the U.S. is healthy. The October jobs report came in above estimates at +271,000 jobs. Wages are actually rising. You would think this would be bullish for consumer spending. Unfortunately the demand for used cars seems to be slowing down.
KMX is in the services sector. According to the company,
"CarMax, a member of the FORTUNE 500 and the S&P 500, is the nation's largest retailer of used cars. Headquartered in Richmond, Va., we currently operate 151 used car stores in 76 markets. The unique CarMax consumer offer allows customers to shop for vehicles the same way they shop for items at other 'big-box' retailers. We provide low, no-haggle prices; a broad selection of CarMax Quality Certified vehicles; and superior customer service. During the fiscal year ended February 28, 2015, we retailed 582,282 used vehicles and we sold 376,186 wholesale vehicles at our in-store auctions."
It looks like low interest rates has fueled huge demand for new cars. Last month the number of new cars sold in the U.S. hit ten-year highs with an annual pace of 18.24 million units. This is probably stealing market share from the used car market. Looking at KMX's last couple of earnings reports both their comparable store unit sales and their quarterly revenues have come in below estimates. Keep in mind that used car sales are still seeing growth but growth is slowing. That's hurting KMX's stock price since they are the largest retailer of used cars.
This stock peaked in April this year. KMX set a lower high in June. Since then shares have been stuck in a bearish trend of lower highs and lower lows. KMX is now in a bear market (down -26% from its 2015 high) and currently testing support near $55.00.
If KMX breaks key support at $55.00 it could signal the next major leg down. I wouldn't be surprised to see a drop toward $50 or even the late 2014 lows in the $44 region. Tonight we are suggesting a trigger to launch bearish positions at $54.75. Please note this is going to be a relatively short-term trade. KMX has earnings coming up in mid December. We will plan to exit prior to their announcement.
Trigger @ $54.75
- Suggested Positions -
Short KMX stock @ $54.75
- (or for more adventurous traders, try this option) -
Buy the JAN $52.50 PUT (KMX160115P52.5) current ask $1.80
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike