At home in the range
04/06/18
If you opened up a daily chart of online auto auctioneer and remarketer Copart (CPRT) yesterday, you might have passed right by it in the search for a more active-looking market:
Copart (CPRT) 1/26/18–4/5/18. CPRT daily chart. Trading range, breakout.

Source: OptionsHouse

As of yesterday the stock had spent a little over three weeks in a narrow trading range between $51.77 and $49.22 (Wednesday’s low). On a closing basis, the range was even tighter: $51.26 to $49.73, which means the stock never closed more than 0.29% above or 2.7% below its March 12 closing price of $51.11, despite a gradual widening of the range.

Ah, but exceptional price calm will many times precede a volatility storm, even if you can’t know exactly when lightning will strike. Copart last released quarterly numbers (good ones, by the way) on February 28, so that potential catalyst is out of the picture for now. The company has been busy in recent months expanding its business (both domestically and globally) through acquisitions, so its admirable 28% EPS growth of last year has the potential to extend into this year as well.1  But the majority of that news hit the market a few weeks ago.

There was, however, a good deal of CPRT options activity yesterday, with an emphasis on calls: A couple of hours into the trading session, call options volume in CPRT was more than twice its daily average, and LiveAction scans also showed it had one of the highest call/put ratios among actively traded stocks:

LiveAction scan, Copart (CPRT) 4/5/18. High call/put ratio.

Source: OptionsHouse

Seemingly bullish call options activity is no guarantee of an imminent move, but it can provide some insight into dynamics that may be at work below the surface of a stock’s price action. Yesterday CPRT pushed to its third-highest intraday level since the range started (and was up more than 1%), although by midday it had retreated a bit from those highs.

A weekly chart (below) shows the stock isn’t just at a near-term high, it’s staying close to its all-time high, the culmination (for now) of a 210% rally since January 2016—44% since mid-November, and more than 25% off its February low. So, maybe the stock’s current breather shouldn’t be such a shock.

But the stock’s recent range actually represents relative strength vs. the broad market, which took a serious slide between March 13 and Monday (the S&P 500 dropped more than 7% during this period). Also, the fact that the stock was in an uptrend before it entered its range could be interpreted as another potentially bullish piece to the puzzle.

Copart (CPRT) 10/20/14–4/5/18. CPRT weekly chart. Recent trend momentum

Source: OptionsHouse

Three weeks is a fairly long time for what has been a trending stock to stay in such a circumscribed range, so a push out of it could lead to a nice momentum move either way. Today’s employment report has the potential to provide a short-term catalyst for the broad market, especially if the number surprises to the upside and helps fortify a rebound off the tariff-scare lows from earlier this week.

 

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1 Zacks.com. Time to Focus on Copart (CPRT) for Strong Earnings Growth Potential. 3/27/18.