CarGurus (CARG) is a website that helps users find and compare local listings for used and new cars. In the current environment, demand is high for used cars in particular which provides a positive fundamental backdrop for the stock price.

We don’t take swing trades on fundamentals, we only consider technical price information. What makes CARG attractive is the tight consolidation range that is persisting within a broader bullish trend. These chart patterns serve as trend continuation patterns IF price breaks out of the range.

While the broader stock market is not exactly in a favorable position, CARG can benefit from its own factors since it is not a highly correlated market stock. Keep in mind IF the S&P sells off dramatically, most stocks are affected to some degree which is why using a buy stop at 29 helps to minimize getting caught in such a situation.

Upon a range break out, it is within reason for price to test the low to mid 30’s over the next week or two. And because of the well defined range, the reward/risk is attractive.

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A Drive Back Into The 30's?

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Here is the swing trade idea:

Buy Stop: 29
Stop Loss: 27
Target 1: 31
Target 2: 33
Target 3: 36
R:R 2.1

The buy stop and stop loss orders are very important to respect. We use a buy stop to help filter out would be stop outs and minimize price noise. If price reaches the stop loss, that means that the market does not agree with the trade idea. Controlling risk in this way helps to preserve capital in the long run.

If you are unsure how to place these orders, etc., then the best way to learn is to simulate the trade on paper.

*This is for educational purposes only. Please read our full disclaimer HERE.

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