Signal: Buy the Dip on Struggling Carvana Stock

Online car retailer Carvana Co (NYSE:CVNA) is trading 1.5% higher at $338.61 at last check, adding to its already 66% year-to-date gain and attempting to recover some of its 10% quarterly loss. Since touching a record high of $413.35 in July, the shares have struggled, though $320 has captured several pullbacks in recent months. Another key trendline is also emerging that should have bulls ready to buy the dip.

CVNA is testing its historically bullish, 126-day trendline. Per Schaeffer's Senior Quantitative Analyst Rocky White, the stock is within 0.75 average true range (ATR) of the moving average after remaining above it 80% of the time in the past two months. This signal has occurred 13 other times in the past 10 years, after which the stock was higher one month later 75% of the time with an average 15.8% gain.

A move of similar magnitude from Carvana stock's current perch would put it at $392.11, filling the gap from the October drawdown.

A short squeeze is also in play, with short interest down 13.3% in the past two reporting periods. This accounts for 8.8% of the stock's total available float, and at the stock's average pace of trading, it would take short sellers over four days to buy back these bearish bets.