How to Trade Chewy When It Reports Earnings on Tuesday

Chewy hovers just below its all-time high as investors look for earnings to propel more gains. Let's look at the chart and examine its key levels.
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As e-commerce continues to do well, so too does Chewy  (CHWY) - Get Report. At Monday’s high, shares were up almost 4%, although those gains have now been clipped to about 1% on the day. 

The rally comes after a solid stretch for the stock and ahead of the company’s earnings report scheduled for after the close of trading on Tuesday.

The stock has now rallied almost 37% from the Nov. 10 low, currently up in 13 of the last 18 trading sessions assuming the stock closes in the green Monday.

In fact, the strong run Chewy has been on has likely been an encouragement for Petco to conduct an initial public offering.

We have seen a relatively muted or disappointing earnings response in the three other times Chewy has reported this year. Bulls are hoping that with the traction we’ve seen in Amazon  (AMZN) - Get Report, Shopify  (SHOP) - Get Report and other e-commerce players, Chewy is also having a strong quarter.

Coming into the report just a few percent below its all-time highs, let’s look at the charts for Chewy shares.

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Trading Chewy

Daily chart of Chewy stock.

Daily chart of Chewy stock.

One thing about Chewy? It’s been a bumpy ride, but one that has been quite profitable for patient bulls with conviction.

This name has chugged its way from the lower left to the upper right, but it’s hardly been a straight line. For instance, the stock suffered peak-to-trough declines of 31.5%, 16.5% and 21% in September, October and November, respectively.

Even this month, Chewy experienced a two-day 10% dip from the highs.

That’s why on a bearish reaction to earnings, it would be nice to see the $70 to $72.50 area act as support. However, that may be too tight of a leash for a stock that moves as much as Chewy.

In any regard, that is the ideal support zone on a lower or muted earnings response. Below $70 will put the 20-day moving average in play, but more importantly, could put the 50-day moving average and uptrend support (blue line) on the table near $65.

Holding this area would be highly encouraging and give bulls a great dip-buying opportunity.

Below that and other key support levels to watch include the 100-day moving average and the $52.50 area.

On the upside, bulls need to see Chewy take out the all-time high at $78.50. Above that and the 138.2% and 161.8% extensions from the September low to the September high comes into play at $83.85 and $89.42, respectively.