Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

Today, I will review Carvana (Ticker: CVNA) and determine whether it is a buy, a pass, or a short … 

The foundation of CVNA’s business is retail car unit sales, which is not such a sexy business right now.

The car business will probably get worse before it gets better.

There is one critical indicator showing that CVNA may produce some nice gains in the near-term. 

CVNA has some runway to survive if the economy cooperates … 

It has $3.9 billion in liquidity, which includes its $434 million in cash on the balance sheet, $1.4 billion in availability under its revolver, and $2 billion in unencumbered real estate.

Here is the most important indicator for a company in CVNA’s condition …

62% of CVNA’s share float, or shares available for borrowing against short sales, has been sold short but has not yet been covered or closed out. 

This shows investors are very pessimistic on CVNA but it also shows that investors who are short are vulnerable to squeezes when the market rallies …

Let’s face it, sometimes companies on the verge of bankruptcy outperform the overall market in a big way for a short period of time …

CVNA may be in a position right now where you can go long with little risk and see a big move up in the near-term. 

Take a Look

CVNA already went through a massive squeeze higher in February. From the $7.5 to $8, I could see it happening again:

Another indicator that is supportive of a rally from here is where implied volatility (IV) is trading versus real volatility (RV).

Here, IV (red line) is trading above RV (blue line). Heavy put buying has elevated the IV of CVNA put contracts.

I would suggest buying a May19 10-15 call spread for under $1 … I think the whole market may get squeezed higher in the next couple of weeks.

So, CVNA could go on another run and you could book as much as 4x your money.

When the market is leaning one way and CVNA is definitely leaning to the bearish side …

Go the other way for big profits.

Live and trade With Passion My Friend,

Griff