KMX is in an established downtrending channel. The stock has recently come up and hit its resistance level and is headed back down. The MACD and stochastics indicators act as confirmation because they are both high and starting to turn down.
The stock is currently trading at $21.53. My target is for it to reach $19.50, which is the current support level for this channel. That will give the option an intrinsic value of $5.50 with a profit of at least 49%.
My exit strategy is:
- If the stock trades above $22.90, exit with a loss. This should limit losses to $1.60 at the most.
- If the stock trades below $20, enter a trailing stop loss order.
Here is the chart. The trendlines aren’t as clean as I would like, but they have held up for about 4 months now.
