Discretionary Destruction … 2023

The Cash Squeeze

During 2022, we’ve had one short squeeze after another.

For 2023, it could be forced liquidation in the relentless squeeze for cash.

One corporate example of the squeeze is the announcement from CarMax; they’ve suspended their stock buybacks.

This ‘buy-back halt’, theme, needs to be added to the market strategy for the coming year.

We can put that on the list right along with skipped dividends, power outages, market outages, internet cyber-attack and supply chain disruptions.

A comment below, posted in yesterday’s update from Jerrimiah Babe, opines the typical consumer’s going to carry on unabated, until the very last minute.

“I don’t believe most people will stop spending until all access to credit is exhausted. Whether it be cards, after-pay, family, theft most will continue to keep up appearances. I honestly think most could be 2 months behind on their mortgage or rent and still be spending on crap. There’s no financial responsibility or discipline anymore.”

How that may translate to the mainstream is, they continue to report ‘the consumer is strong’ until instantly, overnight, they’re not.

Possible timing for that event may be late January, or mid-February (not advice, not a recommendation).

With all that in mind, the last post identified Netflix and Target, as potential candidates for significant downside opportunity.

‘Significant’, meaning a 50% to 90% decline from current levels (not advice, not a recommendation).

Target TGT, Yearly

The year is just about over so let’s start with a very long-term view.

Two things have happened over the past three-years.

Price action has met a measured move out of the wedge as shown; then, a massive downward thrust.

It’s important to note, this year’s down-thrust, dwarfs the previous one during the -64.7%, decline of ’07 – ’09.

There’s a band of support that’s at least nine-years wide, in the vicinity of 50 – 75.

We’ll discuss that in another update.

Netflix NFLX, Yearly

Technically, Netflix is worse than target. That is, it has the potential to decline farther and faster.

NFLX, has support as well but comparatively minor in the area of 50.

It does not become significant until the wedge (blue lines) in the vicinity of 5 – 10.

With Netflix’s ‘product’ being completely discretionary, it’s ultimate downside potential, from a fundamental standpoint, surpasses that of Target.

Summary

Time permitting, shorter timeframes will be presented.

However, since the primary focus of this site, is first on ‘strategy’ (think dollar rally), we’re interested in the larger timeframes.

That in turn, provides background to drill down further for any trade decisions (not advice, not a recommendation).

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

CarMax Crash … What’s Next ?

First, The Dead Cat Bounce …

What was said back then

“As the economy (if you can call it that) falls off the cliff, one of these two (KMX, CVNA), is not likely to survive.”

It looks like Carvana is swirling down its ‘disruptive’ vending machine wormhole, leaving CarMax to pick up whatever’s left of the car ‘consumer’.

The latest earnings release of KMX, confirms what’s left of the typical consumer’s purchasing power, is evaporating if not completely gone.

Still Clueless …

It’s not necessarily the linked earnings report on KMX that’s important, but the comments.

We’ll not call out any specific one but after reading them, there’s an uneasy sense, the typical American is still wandering around in a type of hypnotic, delusional state, namely, mass psychosis.

They’re stunned … ‘looking for the bottom’.

Everyone has their own timeframe but let’s see where an ultimate bottom for KMX, might be on the charts below.

CarMax, KMX, Yearly Chart

The big … big picture

There are three-months left in the year but already the thrust energy lower (magenta arrow) for KMX, is the highest in nearly 26-years of data presented.

Not even the ’08 – ’09, meltdown had downside energy anywhere close to what’s happening now.

That’s a clue in itself, we’ve got a long way to go.

How long, is long?

The quarterly chart of KMX gives us a clue where we might see a ‘bottom’.

CarMax, KMX, Quarterly Chart

Above, we’ve got a terminating wedge (blue lines) that’s been decades in the making.

As the magenta arrow shows, there could be small blip up to resistance in the 85-area before potentially rolling over into a descent that projects to the 4.00, level.

If and when that happens, CarMax rival Carvana, may be long gone; its disruptive vending machines possibly being used as homeless shelters or insect farms.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

Carvana Has No P/E

No P/E

No Grade-Point

Another Animal House ?

Delta

‘All courses, … incomplete

If your biggest claim to fame is that you ‘invented’ a vending machine … you’ve got real problems.

No haggle pricing, thin margins and high volume, have already been pioneered by CarMax.

So, what’s left … you get to select your car with a token and vending machine?

Based on available data, in the past three years, CVNA had one profitable quarter. Those results were released in August, this year.

About a week after that, CVNA breaks its uptrend, goes sideways and now, is heading lower.

CVNA Trend Break

The daily chart has the arrow showing the only profitable quarter in three years.

On the other side of business, we have CarMax … where every quarter for the past ten-years has been profitable.

Double The Bubble

During the melt-down in 2007 – 2008, new cars on retail lots had window stickers that said ‘$10,000 Off List Price’.

We’re probably double the bubble of then. With that in mind, even CarMax looks poised to have a hard time.

As the economy (if you can call it that) falls off the cliff, one of these two (KMX, CVNA), is not likely to survive.

So, we can expect even deeper discounts.

However, this time, it’s likely to be a choice between buying food or buying the SUV at 70% – 80%, off retail.

On the positive side, that SUV can be put to work hauling fertilizer (if it can be found) for raised bed gardens. 🙂

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279