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Car Stock Has Plenty Left in the Tank

Patrick Martin

A big earnings winner last week was Carvana Co (NYSE:CVNA), which gapped higher by 25% -- its best day since June 2017 -- in the wake of better-than-expected second-quarter revenue. Fresh off that upbeat report and an Aug. 14 record high of $81.37, CVNA is flashing a bullish signal that indicates there's plenty of room for more upside, if history is any indicator.

Diving in, implied volatilies on the equity are at historically low levels, per the stock's Schaeffer's Volatility Index (SVI) of 59%, which registers in the 10th percentile of its annual range. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the two other times in the past five years the equity has been trading near a 52-week high while its SVI ranked in the 20th annual percentile or lower, there's been an average one-month gain of 7.6%.

At last check, Carvana stock was down 1% to trade at $78.09, so a move higher of similar proportion would put it in fresh record-high territory of $84.60. CVNA has already more than doubled in 2019, with summer pullbacks finding a cushion at the $55 level. 

Daily Stock Chart CVNA

A short squeeze could also keep the wind at the security's back. Short interest swelled by 20% in the two most recent reporting periods, and now accounts for a hefty 38% of CVNA's total available float. At the stock's average pace of trading, it would take more than 13 days for shorts to buy back their bearish bets.