Carvana Drops 5.74% as Bearish Engulfing Pattern Signals Near-Term Exhaustion

Carvana (CVNA) declined 5.74% in the latest session, closing at $367.78 after encountering resistance near its recent peak of $413.34. This movement occurs within a broader context of substantial volatility, with the stock rising from approximately $137 in August 2024 to its July 2025 high before the current pullback.
Candlestick Theory
The recent price action reveals critical pattern developments. On July 31, CVNA formed a robust bullish candle (+16.96%) with a wide range ($383.50–$413.34), signaling strong buying momentum. However, this was immediately followed by a bearish engulfing pattern on August 1, where the price opened near $384.26 but closed near its daily low of $365, erasing a significant portion of the prior day’s gains. Key resistance remains at the recent high of $413.34, while support converges at the $343–$350 zone—reinforced by the July 30 low ($328.58) and the psychological $350 level. This structure suggests vulnerability to further downside unless buyers reclaim $385.
Moving Average Theory
The 50-day MA (approximately $338) continues to underpin the broader uptrend, with the 100-day MA ($280–$290) and 200-day MA ($220–$230) sloping upward—indicating sustained long-term bullish bias. However, the August 1 close at $367.78 has brought CVNA to test the 20-day MA ($365–$370). A decisive breach below the 50-day MA could trigger accelerated selling. Currently, the sequence (price > 50-day > 100-day > 200-day) remains intact, supporting the primary trend, though the short-term momentum has weakened.
MACD & KDJ Indicators
The MACD histogram turned negative after the August 1 decline, with the MACD line (12/26-day EMA) crossing below its signal line (9-day EMA of MACD)—a bearish crossover signaling waning momentum. Concurrently, the KDJ oscillator retreated sharply from overbought territory (recent %K >90 on July 31) to around 35 on August 1, with the J-line diving below 30. This abrupt shift from overbought conditions aligns with the price retreat and hints at additional near-term consolidation. Divergence is noted in the KDJ, where the July 31 price peak exceeded prior highs, but the oscillator failed to confirm, flashing initial caution before the sell-off.
Bollinger Bands
Volatility expanded dramatically during the late-July rally, with the August 1 close piercing the lower Bollinger Band (20-day SMA at $370 ± 2σ). Typically, such a move suggests an oversold bounce might be pending, but the bearish engulfing candle and volume profile warrant caution. The bandwidth expanded 30% in the week preceding July 31, reflecting elevated volatility. A sustained close below the lower band ($365) may catalyze further downside, while recovery above $380 would signal stabilization.
Volume-Price Relationship
Volume dynamics underscore key reversals. The July 31 surge (+16.96%) occurred on significantly elevated volume (10.88M shares), validating bullish momentum. However, the subsequent 5.74% drop on August 1 materialized on diminished volume (5.04M shares), suggesting limited conviction in the retreat. This divergence may indicate profit-taking rather than aggressive capitulation, though a close below $365 on expanding volume would challenge this view. Critical supports at $350 and $344 must hold to avoid activating larger liquidation patterns.
Relative Strength Index (RSI)
The 14-day RSI plunged from overbought levels (78 on July 31) to approximately 58 on August 1. While the RSI remains above neutral, its swift exit from overbought territory—coupled with the MACD crossover—bolsters the case for near-term exhaustion. Traders should note that RSI warnings (especially above 70) preceded the latest decline. A drop below 50 would reinforce bearish momentum.
Fibonacci Retracement
Using the major swing low at $118.50 (August 5, 2024) and swing high at $413.34 (July 31, 2025), key Fibonacci retracement levels emerge: 23.6% ($343.76), 38.2% ($300.71), and 50% ($265.92). The August 1 low ($365) aligns with the 23.6% retracement, making $343.76 a critical support confluence with the 50-day MA and the July gap-up opening at $383.50. A break below $343.76 would expose $300.71. Conversely, holding $365 may catalyze a rebound toward $385 resistance.
Confluence and Divergence
Confluence centers on the $343–$350 support zone, harmonizing Fibonacci, MA, and psychological levels. Divergence is evident between MACD/KJD momentum readings and the July 31 price high. Although volume divergence softened the bearish August 1 move, the breach below Bollinger’s lower band and RSI deterioration suggest downside risks persist. A weekly close below $343.76 would invalidate near-term bullish bias, while recovery above $385 could reignite upside momentum. In all scenarios, volatility is expected to remain elevated.