Carvana's 15% Drop: A Technical Breakdown of the Selloff

Carvana's recent price action is a textbook case of selling pressure overwhelming momentum. The stock has dropped 14.98% over the past five trading days, closing at $343.19. That's a brutal move, far steeper than the broader market's 1.29% dip and the Consumer Discretionary sector's slide. The breakdown is now clear on the charts.

Price has fallen decisively below multiple key moving averages, turning them into resistance. The immediate technical support is gone. The 5-day simple moving average at $370.88 is now acting as a ceiling, a clear sign the short-term uptrend is broken. The stock is also below the 10-day, 20-day, and 50-day MAs, all of which are now in sell territory. This creates a clear path for further downside if sellers maintain control.

The momentum indicators confirm the downtrend is intact, though the stock is showing signs of oversold conditions. The RSI reading of 31.9 sits in oversold territory, which often precedes a bounce. But in a strong downtrend, oversold readings can persist. The broader technical picture is bearish, with indicators like MACD and ADX all signaling sell pressure. The setup is one of a stock that has broken its key averages and is now testing lower support levels, with the RSI merely highlighting that the selling may be overdone, not that it's over.

The Supply Shock: Insider Selling and Sentiment Shift

The technical breakdown wasn't just a random drop. It was a supply shock hitting a valuation that had already priced in perfection. The selling pressure came from two clear sources: a sustained overhang of shares hitting the market and a rapid shift in sentiment that turned retail traders into sellers.

First, the insider selling created a steady, visible supply overhang. Executives have been systematically liquidating their holdings, not just selling a few shares. In December, key figures like the COO and Chief Product Officer sold 100,000+ shares and 120,000+ shares, respectively. The pattern intensified in February, with the CFO and COO selling another over 20,000 shares in a single week. The key detail is the method: they are exercising stock options at $0.0 and immediately selling, which means no new capital is being invested in the company. This is pure liquidity extraction, a clear signal that the insiders see no near-term catalyst to hold. For the market, this is a direct increase in supply with no corresponding demand.

Second, sentiment shifted from valuation concerns to outright fraud allegations, accelerating the sell-off. Retail investor sentiment scores, which were already weak, collapsed from 18 to 10-12 in just a week. The narrative on social media went from "expensive" to "fraud," with a post alleging accounting discrepancies drawing 153 upvotes. This isn't just noise; it's a real-time shift in the crowd's psychology, turning a bearish view into a panic. The options market reflected this, with traders discussing puts as early as February 11, showing they were hedging or betting on further downside.

The valuation gap made this setup explosive. Carvana trades at 78x earnings versus CarMax's 15x. When both stocks fell nearly 12% this week amid sector pressure, the difference mattered. CarMax's lower multiple gives it a margin of safety. Carvana's premium valuation leaves zero room for error. Any growth concern or transparency issue, like the fraud allegations, is a direct threat to its multiple. The supply shock from insider selling met a demand shock from broken sentiment, and the technical breakdown was the inevitable result.

The Setup: Key Levels and the Path Ahead

The technical battleground is now defined. Price is caught between a steep drop and a long way to go. The immediate support is gone, and the path ahead hinges on a few critical levels.

The next major support is the 52-week low of $148.25. That's a brutal 57% drop from the recent high, but it's the ultimate floor if selling pressure continues unchecked. A key pivot point sits right at the current price: the DeMark's S1 at $343.22. This level is a technical anchor; a break below it would signal the downtrend is accelerating. The next major technical hurdle is the Woodie's S1 at $323.09. A decisive break below that level would confirm the breakdown is intact and open the door to the next support zone around $300.

Resistance is clustered in a tight band. The immediate ceiling is the 5-day simple moving average at $370.88, which is now acting as resistance. The broader resistance cluster lies between $365 and $389, with the 52-week high of $486.89 as the long-term ceiling. For now, the stock is trading well below these levels, but they represent the zones sellers will defend if a bounce occurs.

The upcoming catalyst is the Q4 earnings report scheduled for February 18. This is the single most important event for the next move. The report could confirm the breakdown if results miss or guidance is weak, sending price toward the $323-$300 support. Conversely, strong numbers and a confident outlook could spark a technical reversal, forcing sellers to cover and pushing price back toward the $370 resistance. The options market is already pricing in volatility around this date.

The bottom line is one of clear supply and demand zones. The stock is oversold but in a downtrend. The setup is a classic test of support: break below $323, and the path to $300 and lower is open. Hold above $343, and the $370 resistance becomes the next target. The earnings report on the 18th will provide the decisive data point to move the battle lines.