We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
“There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
The above quote is from legendary trader Jesse Livermore. At one point in the early 1900s, Livermore was one of the wealthiest people on the planet.
Why Study Past Winners?
Studying past winners can provide valuable insights and lessons that investors can apply to future investment decisions. In my experience, a key distinction exists between successful and unsuccessful traders. That is, amateur investors tend to want the next hot stock tip and nothing more. Conversely, savvy investors realize that the key to long-term success in the stock market lies in having a repeatable process and identifying historical patterns. By studying past winners, investors can hone their approach to take advantage of and recognize the qualities inherent in winning stocks.
Rearview Mirror
Today, I will cover a recent winning trade from the Tech Innovators Portfolio service that I manage. On June 13th, we issued a buy signal for Carvana ((CVNA - Free Report) ) at $36.73. Six days later, on July 19th, we sold the stock for gains of 45.28%.
The Set Up
Bull Flag Pattern
I believe price and volume action is the single most critical factor to watch when trading stocks. Why? While other data points are up for interpretation and are subjective, price and volume represent real money at work.
June 8th, Carvana shares rocketed by 56% after the company provided investors with an upbeat second-quarter outlook and announced cost-cutting initiatives. The volume that day exploded to 748% above the 50-day norm, signaling massive demand. Next, price consolidated sideways, signaling that investors were unwilling to part with their shares. Finally, shares broke out of another bull flag base structure as relative volume increased by 18% - a sign of renewed demand. The decisive price action, volume, and attractive base structure were clues that investors wanted to put money to work.
Image Source: TradingView
Throwing Gasoline on a Fire
When we issued the buy alert, Carvana had a short-interest of more than 50% of its float. Rapid increases in up trending, explosive stocks like Carvana can force short sellers to close their short positions and buy back the stock (short squeeze).
Fundamentals: The Future Supersedes the Past
It is no secret that Carvana was hemorrhaging cash and struggling as a company. However, more than 40 years ago, Zacks Investment Research’s statistical models led to the breakthrough discovery that “Earnings estimate revisions are the most powerful force impacting stock prices.” In other words, stocks are forward-looking and discount future earnings. At the time of our purchase, CVNA saw several estimate revisions adjusted higher and strong earnings expectations for the next three quarters.
Image Source: Zacks Investment Research
Observe the Market Environment
In 2023, the trend has cycled from safe-haven dividend stocks to “risk on” stocks like CVNA.
Image Source: GHD
Sell the Euphoria
Wednesday, we got the pay-off move. CVNA shares shot higher by 40% on news that it had secured a restructuring deal to reduce debt by $1.2 billion.
Image Source: TradingView
The magnitude and euphoric feel of the move got us out of the stock for a nice win.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
Carvana Case Study: Anatomy of a Winning Trade
“There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
The above quote is from legendary trader Jesse Livermore. At one point in the early 1900s, Livermore was one of the wealthiest people on the planet.
Why Study Past Winners?
Studying past winners can provide valuable insights and lessons that investors can apply to future investment decisions. In my experience, a key distinction exists between successful and unsuccessful traders. That is, amateur investors tend to want the next hot stock tip and nothing more. Conversely, savvy investors realize that the key to long-term success in the stock market lies in having a repeatable process and identifying historical patterns. By studying past winners, investors can hone their approach to take advantage of and recognize the qualities inherent in winning stocks.
Rearview Mirror
Today, I will cover a recent winning trade from the Tech Innovators Portfolio service that I manage. On June 13th, we issued a buy signal for Carvana ((CVNA - Free Report) ) at $36.73. Six days later, on July 19th, we sold the stock for gains of 45.28%.
The Set Up
Bull Flag Pattern
I believe price and volume action is the single most critical factor to watch when trading stocks. Why? While other data points are up for interpretation and are subjective, price and volume represent real money at work.
June 8th, Carvana shares rocketed by 56% after the company provided investors with an upbeat second-quarter outlook and announced cost-cutting initiatives. The volume that day exploded to 748% above the 50-day norm, signaling massive demand. Next, price consolidated sideways, signaling that investors were unwilling to part with their shares. Finally, shares broke out of another bull flag base structure as relative volume increased by 18% - a sign of renewed demand. The decisive price action, volume, and attractive base structure were clues that investors wanted to put money to work.
Image Source: TradingView
Throwing Gasoline on a Fire
When we issued the buy alert, Carvana had a short-interest of more than 50% of its float. Rapid increases in up trending, explosive stocks like Carvana can force short sellers to close their short positions and buy back the stock (short squeeze).
Fundamentals: The Future Supersedes the Past
It is no secret that Carvana was hemorrhaging cash and struggling as a company. However, more than 40 years ago, Zacks Investment Research’s statistical models led to the breakthrough discovery that “Earnings estimate revisions are the most powerful force impacting stock prices.” In other words, stocks are forward-looking and discount future earnings. At the time of our purchase, CVNA saw several estimate revisions adjusted higher and strong earnings expectations for the next three quarters.
Image Source: Zacks Investment Research
Observe the Market Environment
In 2023, the trend has cycled from safe-haven dividend stocks to “risk on” stocks like CVNA.
Image Source: GHD
Sell the Euphoria
Wednesday, we got the pay-off move. CVNA shares shot higher by 40% on news that it had secured a restructuring deal to reduce debt by $1.2 billion.
Image Source: TradingView
The magnitude and euphoric feel of the move got us out of the stock for a nice win.