Carvana stock price has moved sideways in the past few days as the recent bull run took a breather. It was trading at $338 on Wednesday, down from the year-to-date high of $400. It remains close to 1,000% above the 2022 low, giving it a market capitalization of over $72 billion. This article explains why the CVNA stock price could crash soon.

Carvana stock price technical analysis

The weekly chart shows that the CVNA stock price has been in a strong bull run after bottoming at $3.50 in 2022. It has then surged and peaked at a high of $400 as its business performance boomed.

A closer look at the chart shows that it has formed two risky chart patterns that could lead to a breakdown. Carvana stock price formed a rising wedge pattern, one of the most accurate reversal patterns. 

The upper line of this pattern connects the highest swings since November last year. On the other hand, the lower side of this pattern connects the lowest swings since November 2023. 

Now, the two lines of this pattern are about to converge, pointing to an eventual bearish breakdown. If this happens, the next point to watch will be at $150, its lowest level in April this year. 

On the flip side, a move above the upper side of the wedge will invalidate the bearish outlook. If this happens, the next point to watch will be at $500.

The other bearish catalyst is that the Relative Strength Index (RSI) has pointed downwards and is nearing the neutral point of 50. Also, the two lines of the MACD have made a bearish reversal and are pointing downwards. 

CVNA stock chart | Source: TradingView

Carvana shares have potential risks

The CVNA stock price has numerous bearish catalysts that may drag it lower in the near term. First, third-party data shows that its insiders have been on a selling spree in the past few months as they leveraged on its strong performance. 

Data shows that they have executed 80 sell trades in the last three months, 107 in the last six, and 153 in the last 12 months. They have dumped 9.8 million shares in the last 12 months. At the current price of $338, these shares are worth over $3.3 billion, which is equivalent to 4.2% of its current market capitalization. 

Earnest Garcia III and Ernest Garcia II have been the most aggressive sellers. These sales are notable because Garcia III is the company’s CEO, while II is his father.

Insider sales is often a red flag because it signals that these insiders know something that the rest of the public don’t. At times, however, insider sales could happen as they diversify their portfolios. 

The other potential risk that could derail the CVNA stock price is that it has a stretched valuation. Data shows that it has a forward PE ratio of 66, much higher than the sector median of 19. 

This stretched valuation is because of its strong performance and growing market share in the used car industry. For example, it sold 143,280 vehicles in the second quarter, a 41% surge from the same period last year. Its revenue rose by 42% to $4.8 billion, while the net income rose to $308 million.

As such, a company growing this fast deserves a premium valuation. However, there are signs that the valuation is much stretched compared to other equally growing companies like NVIDIA, which has a multiple of 45. 

Also, there are signs that its growth will start slowing. Analysts believe that its revenue growth this year will be 38% followed by 25% in 2026.

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