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Key Takeaways

• Carvana shares jumped nearly 4% on Tuesday, extending their winning streak to five consecutive days.

• Analysts at Morgan Stanley upgraded the stock, saying that recent selling in the shares provides an opportunity for investors to gain exposure to the online automobile retailer.

• Since setting their late-November peak, Carvana shares have oscillated within a trading range, potentially consolidating before the stock’s next move higher.

• Investors should watch crucial overhead areas on Carvana's chart around $265 and $365, while also monitoring key support levels near $165 and $130.

Carvana (CVNA) shares surged Tuesday following an upgrade from Morgan Stanley, extending the stock's winning streak to five consecutive sessions.

Analysts at the investment bank said that recent selling in the shares provides an opportunity for investors to gain exposure to a leader in auto retail and fleet fulfillment, adding that the company has the potential to become the Amazon (AMZN) of auto retail.

Carvana shares, which rose nearly 4% to close near $222 on Tuesday, have gained 33% during their five-day rally. The stock is still down 24% from its record high set last month, but it remains 150% higher than its year-ago level, boosted by the company's improved profitability and efforts to reduce costs.

Below, we break down the technicals on Carvana’s chart and identify crucial price levels worth watching out for.

Trading Range Signals Potential Consolidation

Since setting their late-November peak, Carvana shares have oscillated within a trading range, potentially consolidating before the stock’s next move higher.

More recently, buyers emerged just below the 200-day moving average, with the price closing back above the closely followed indicator last Friday. In another win for the bulls, recent buying has coincided with the relative strength index (RSI) reclaiming the 50 threshold, signaling improving positive price momentum.

Let’s apply technical analysis to identify crucial overhead areas on Carvana’s chart that investors may be eyeing and also locate key support levels worth monitoring during pullbacks.

Crucial Overhead Areas to Watch

The first crucial overhead area to watch sits around $265. The shares could encounter selling pressure in this region near last year’s prominent November swing high and a brief period of consolidation that preceded the stock’s record high.

If Carvana shares rally into blue sky territory, investors can forecast an upside target by using the measuring principle, a technique that analyzes chart patterns to predict future price movements.