CarMax Inc. (KMX) - Get Report is the top gainer in the S&P 500 Thursday with the help of a 6% gain. This upgrade-inspired breakout move has pushed shares well past heavy resistance near the April highs. With a solid base now underneath, KMX is setting up for a new rally leg that could carry shares back up to its 2017 highs.
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After putting in a slightly higher monthly high in mid February, KMX began a steep pullback. By early April the stock was drifting below major support near the 200-day moving average and had re-entered oversold territory. As earnings neared, shares were in a very vulnerable position, with loads of overhead supply in place.
On April 6, KMX put in a key upside reversal following its Q4 earnings report. The stock continued to recover through the remainder of the month, but was unable to break free of its 200-day moving average. Today shares have clearly taken out this key area and have left behind what could develop as a major base. In the near term, KMX investors should consider the stock a buy on weakness. Initial layer of support is near $62.00. If KMX can continue to build momentum above this level, a run back up to the 2017 peak near $59.00 is likely. On the downside, a close back below $58.00 would violate last week's low, sending a clear warning sign in the process.
KMX sports a fairly high short-interest ratio of 6.9. This will add considerable upside fuel as shares continue to put distance on the April high.