Car retailer CarMax (KMX) delivered a pleasant surprise to shareholders early last Friday, reporting better-than-expected results for its fourth quarter. KMX stock jumped in an unsurprising but technically significant move, putting the odds in favor of higher prices still in the near to medium term.
Specifically, CarMax earnings came to 76 cents per share to beat estimates of 67 cents. That came on revenues of $3.75 billion, also handsomely beating analyst estimates of $3.59 billion. KMX reported that used-car sales grew almost 10% while new-car sales rose an impressive 33% on a year over year basis. Like many car retailers, financing is an important part of the company’s business, which last quarter grew by almost 9%.
Overall, CarMax’s quarter was its best ever in terms of the top and bottom lines.
After Friday’s report, a number of brokers upgraded their view on KMX stock price, including William Blair, who bumped the stock up to an “outperform” rating.
Meanwhile, KMX stock rallied an impressive 16.5% on Friday, and on a notable spike in volume, to bring the stock price to a technically critical area from a multiyear perspective.
KMX Stock Charts
On the daily chart, note the massive spike in volume from last Friday’s rally in KMX stock. Note how the rally cleanly broke the stock’s diagonal resistance line from the December 2013 highs, and also ripped the stock back above all of its medium-term moving averages (50-, 100- and 200-day).
CarMax closed the week last Friday in the resistance band that dates back to last autumn (blue zone). From here, given the big up-gap rally on huge volume from last Friday, KMX should have its upside momentum back.
In the immediate term, CarMax would do well to consolidate last Friday’s rally for a few days or even weeks, but eventually a move past resistance and toward the $58 area now stands a good chance.
Active traders and investors could consider buying the stock on any dips or on a break past last Friday’s highs. However, KMX stock should not give up more than half of last Friday’s rally or risk falling back into the consolidation range for another few months.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.