Shares have risen slightly on Thursday, up about 0.5%, ahead of Thursday evening's earnings report. Investors are hoping that the company can deliver with the stock up 165% from its March low.
The long-term theme is clear, with a marriage between e-commerce and spending on our pets. Both are secular growth themes as we’ve seen for many years now.
However, the spike in online shopping — like we’ve seen with Amazon (AMZN) - Get Report, Target (TGT) - Get Report, Walmart (WMT) - Get Report and others — has helped fuel recent optimism. That has given Chewy a short-term boost as well.
Although the long-term and short-term catalysts are in place, there’s no telling how a stock will react to its quarterly results, particularly with more volatility coming back into the market.
Trading Chewy Stock
The breakout over $60 was powerful and while I was looking for a move up to the 261.8% extension near $75, I did not necessarily think it would happen that fast.
However, Chewy stock could not maintain those recent gains, pulling back to the low-$60s. For now, we have a nimble setup, in that the $60 breakout level and 20-day moving average are acting as support, while the stock is having trouble clearing the two-times range extension.
This would set up a great “if-then” situation in Chewy if earnings were not on deck. That said, earnings are on deck, so how do we approach the stock?
Long-term bulls who like Chewy may consider a small initiation near current levels. Down over 17% from the recent highs and holding support is a decent setup ahead of the event. I would be more concerned if shares were up near $75 than down around $60.
On a bullish reaction, look for a move above this week’s high at $65.30. Above that puts $75 back on the table. Above the 261.8% extension and Chewy can begin to make its move toward $82.78, the three-times range extension.
On the downside, a move below the 20-day moving average and $60 will put the 50-day moving average and 161.8% extension in play near $52.50. That could provide investors with a buyable dip, provided the report is not horrendous.