Buy Chewy Ahead of Earnings? Let's Look at the Chart

Chewy has been trading well lately, and that even includes the recent dip ahead of earnings. Let's look at the chart ahead of the print.
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Chewy  (CHWY) - Get Report shares have been trading well lately, despite the stock pulling back from last week’s run to new highs.

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.

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Trading Chewy Stock

Daily chart of Chewy stock.

Daily chart of 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.