CarMax Inc. (KMX) operates automotive dealerships selling and servicing both used and new vehicles. The stock closed Thursday at $66.00, up just 2.5% year to date and in bull market territory at 21.6% above its 52-week low of $54.29 set on April 6. The stock set its 52-week high of $77.64 on Oct. 3 and is in correction territory since then, down 15%.

On Thursday before the opening bell, CarMax reported earnings for its third quarter, which ended Nov. 30. Earnings per share were a slight miss, but revenues exceeded estimates. The stock slipped modestly in Thursday's trading. (See also: A New CEO Takes the Reins at CarMax.)

The daily chart for CarMax

Daily technical chartshowing the performance of CarMax Inc. (KMX) stockCourtesy of MetaStock Xenith

The daily chart for CarMax shows the Fibonacci retracement levels of the rebound from the April 6 low of $54.29 to the Oct. 3 high of $77.64. Looking at the horizontal lines, the stock declined below its 23.6% retracement of $72.11 on Nov. 14, then fell below the 38.2% retracement of $68.70 on Nov. 22 and then tested its 50% retracement of $65.94 on Dec. 6. The chart clearly shows that the downside to $64.81 in reaction to earnings was followed by a snap-back to the 50% retracement, which lines up with the 200-day simple moving average of $65.76.

The weekly chart for CarMax

Weekly technical chartshowing the performance of CarMax Inc. (KMX) stockCourtesy of MetaStock Xenith

The weekly chart for CarMax is negative, with the stock below its five-week modified moving average of $68.99. The stock is above its 200-week simple moving average at $58.65 and has been above this "reversion to the mean" since the week of April 21, when the average was $55.36. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 25.08 this week, down from 30.42 on Dec. 15.

Given these charts and analysis, my trading strategy is to buy weakness to my quarterly value level of $61.96 and to reduce holdings on strength to my semiannual risky level of $70.83, which has already been tested during the week of Dec. 8. (For more, see: AutoNation vs. CarMax: Comparing Under the Hood.)

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