Shares of Carvana (NYSE: CVNA) sank as much as 23.7% this week, according to data from S&P Global Market Intelligence. The online used car retailer, famous for its car vending machines, didn't have any company-specific news this week. However, its top competitor, CarMax (NYSE: KMX), reported poor earnings, signaling to investors that the used car market is weakening. As of 12:00 p.m. EST on Friday, Carvana shares are down 18.2% this week.

Carvana operates in the used car market, enabling people to buy and sell used vehicles directly from their phones and have them delivered to their houses. CarMax -- one of Carvana's most prominent competitors -- does so as well but with an omnichannel dealership model. Either way, the companies are competing for the same customers (people interested in buying used cars).

With this in mind, it is no surprise that Carvana's stock tanked when CarMax reported surprisingly bad second-quarter earnings. CarMax's earnings per share (EPS) dropped to $0.79 in the quarter, down 54% year over year. With used car prices still through the roof and interest rates rising, too, making it difficult for consumers to finance purchases, demand has fallen off a cliff. Even though CarMax gained market share in Q2, units sold decreased 6.4% year over year, and vehicles bought from consumers and dealers were down 8.1% from the prior year. Weakening demand indicates that used car prices could fall soon, which would further hurt CarMax's earnings and margins.

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Source Fool.com