CarMax, Inc (NYSE: KMX)

CarMax, Inc., through its subsidiaries, operates as a retailer of used vehicles in the United States. It operates in two segments, CarMax Sales Operations and CarMax Auto Finance. The company sells vehicles that do not meet its retail standards to licensed dealers through on-site wholesale auctions, as well as sells new vehicles under franchise agreements. It also provides customers financing alternatives through its finance operation, CarMax Auto Finance, as well as through its third-party financing providers. In addition, the company offers a range of other related products and services, including the sale of extended service plans, guaranteed asset protection, and accessories; the appraisal and purchase of vehicles directly from consumers; and vehicle repair services. As of April 10, 2013, it had 119 used car superstores in 59 markets. The company was founded in 1993 and is based in Richmond, Virginia.

To review CarMax’s stock, please take a look at the 1-year chart of KMX (CarMax, Inc.) below with my added notations:

1-year chart of KMX (CarMax, Inc.)

Over the last 12 months KMX has consistently moved higher. Since October though, the stock has formed a nice trendline of support (navy). Always remember that any (2) points can start a trendline, but it’s the 3rd test and beyond that confirm its importance. Obviously KMX’s trendline is important to the stock since it has been tested on multiple occasions over the last(8) months.

The Tale of the Tape: KMX has created a nice trendline of support over the last (8) months. A long position could be entered on a pullback to that trendline, which is approaching $44, with a stop placed below that level. A short position could be entered if KMX were to break the trend line support.

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Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT