Carvana (CVNA) drops 0.24% for second session as bearish engulfing pattern death cross and oversold RSI signal continued decline

Carvana (CVNA) fell 0.24% for the second consecutive session, marking a 2.78% decline in the past two trading days. The stock’s recent price action and technical indicators suggest a bearish bias, with multiple tools aligning on potential short-term weakness.

Candlestick Theory

The two-day decline aligns with a bearish engulfing pattern, where a larger bearish candle follows a smaller bullish one, signaling potential continuation of the downtrend. Key support levels can be identified at previous troughs, such as the $353.91 (October 11) and $343.00 (September 30), while resistance is clustered near $360.03 (October 9) and $369.60 (October 6). A breakdown below $353.91 could target the next Fibonacci retracement level at $340.00, with the 200-day moving average (currently ~$350) acting as a critical psychological threshold.

Moving Average Theory

The 50-day moving average (DMA) has crossed below the 200-DMA, forming a bearish “death cross” that suggests a medium-term downtrend. The 100-DMA (currently ~$365) and 200-DMA (~$350) are diverging, with the price hovering near the 100-DMA but showing no signs of crossing above it. This divergence implies weakening momentum, with the short-term 50-DMA (~$355) acting as a dynamic support. A retest of the 200-DMA could confirm a shift to a bearish bias.

MACD & KDJ Indicators

The MACD histogram has turned negative, with the MACD line (-12.3) below the signal line (-18.7), reinforcing bearish momentum. The KDJ indicator shows the stock in oversold territory (K: 15, D: 22), but the J-line (-3) has not yet crossed above K, indicating the market may not be ready to reverse. This suggests a potential pullback could occur, but divergence between K and D (e.g., K failing to cross above D) may delay a reversal.

Bollinger Bands

The price is trading near the lower Bollinger Band ($353.91), indicating oversold conditions and potential for a mean reversion. However, the bands have been contracting for the past week, signaling low volatility and a potential breakout. If the price breaks below the lower band, it may signal further deterioration, while a rebound above the middle band ($360.03) could indicate short-term stability.

Volume-Price Relationship

Trading volume has surged on recent down days, with the October 8 session seeing 2.699 million shares traded, the highest in the past two weeks. This volume confirms the bearish price action, suggesting strong selling pressure. However, volume has been declining on subsequent down days, which may indicate exhaustion. A divergence between volume and price (e.g., lower volume on continued declines) could foreshadow a near-term reversal.

Relative Strength Index (RSI)

The RSI stands at 28, well below the 30 oversold threshold, but this does not guarantee an immediate rebound. Historically, CVNA’s RSI has spent prolonged periods in oversold territory during its recent volatility, with the 2024-2025 decline seeing RSI levels below 30 for over 30 trading days. While a short-term bounce is possible, the broader context of weak fundamentals and bearish moving averages suggests the oversold reading is more of a warning than a buy signal.

Fibonacci Retracement

Key Fibonacci levels from the recent high of $395.41 (October 1) to the low of $343.00 (September 30) include 38.2% at $369.00 and 50% at $369.20. The current price of $360.03 is approaching the 61.8% retracement level ($357.50), which could act as a critical support. A breakdown below this level may target the 78.6% retracement at $347.00, aligning with the 200-DMA.

Backtest Hypothesis

The proposed RSI-based strategy (buying at <30, selling at >70) from 2022 to 2025 yielded catastrophic results: a -68.46% return versus a 40.84% benchmark, with a -26.54% CAGR. This underperformance correlates with CVNA’s extreme volatility and operational turmoil, as highlighted by its 98% 2022 price drop and regulatory challenges. The strategy’s failure underscores the limitations of relying solely on momentum indicators for stocks with deteriorating fundamentals. Integrating Fibonacci retracement levels and Bollinger Band contractions into the strategy might have improved timing, but the broader context of Carvana’s financial instability (e.g., liquidity risks, EBITDA losses) rendered technical signals unreliable.