KMX | CarMax Trading Journal with VantagePoint

VantagePoint Trading Software is a forecasting tool that uses both end of day data and artificial intelligence to provide traders a forecast of market movement. These forecasts are 1-3 days in advance and help traders improve their timing on making trades and maximizing profit potential. The artificial intelligence software forecasts market movement for stocks, futures, Forex and ETFs. The automotive resale company CarMax, Inc. KMX stock is in focus today…

This journal entry looks at the recent market movements of CarMax NYSE: KMX

VantagePoint Trading Journal KMX Stock

U.S. stock index futures pointed to a mixed open on Tuesday. Investors turned their attention to new data and earnings while keeping an eye on the key domestic news.

Taking this market environment into consideration, the VantagePoint platform does provide potential and direction for us using the powerful tools at our disposal. Using the artificial intelligence forecasting software VantagePoint, we can analyze individual stocks, futures or ETFs and broad indexes like the S&P, Dow, and the Russell. After utilizing our VantagePoint platform, I am continuing to look for value plays to the upside in strong sectors. Any overreaction to the market elements outlined above is most likely an opportunity to the upside. Today, CarMax (KMX) is in full focus. Here’s the chart:

image of KMX stock trading diary with VantagePoint
VantagePoint recently indicated a potential upside breakout in KMX stock due to a bullish crossover on 12-4-17.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out two significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black, simple 10-day moving average on 12/04/17. We can combine that with the VantagePoint propriety neural index indicator moving from the zero (0) to the one (1) position. This indicator measures strength and weakness for a 48-hour period. The move to the one (1) position further makes the case for a potential bullish scenario. That’s why I am willing to entertain a setup to the upside.

Strategy Discussion

If one were a straight stock trader, simply buying KMX stock in the $70.00 area could prove to be prudent. You are anticipating a continuing move to the upside. It’s also a conservative way to enter KMX without the limitation of time associated with other strategies. In this scenario, placing a sell-stop order in the $68.00 area to mitigate potential losses could be beneficial.

For more active traders with a shorter investment time horizon, you can consider a setup utilizing options. KMX stock has accepted support in the $68.00 area. We can combine that with the indicators highlighted in VantagePoint to identify an active approach to the upside.

Because of the reasons given above, a debit call spread may be one way to approach this situation. The critical piece here is to identify a target price. We can determine a target price with three simple inputs. Those inputs are current price, time to expiration (expiration date), and at the money volatility for this time horizon. In this case, we will use a price of $70.71, an expiration of 12/15/17 and at the money volatility of 27.4%. This yields a target price of $73.55.

We can consider the December 72/73.5 call vertical which is trading $0.50 presently. This spread has a maximum risk of $0.50 and a maximum reward of the width of the spread of $1.50 less any premium paid. In this case, that total is $1.00. That gives us a reward to risk ratio of 2.00:1. Given the proximity of the spread to the money coupled with a short time to expiration (9 trading sessions), this reward to risk may be appropriate.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

image of vantage point software banner'

Leave a Reply

Your email address will not be published. Required fields are marked *

Translate »