How to Trade Chewy as Shares Fade From Big Earnings Gains

Chewy is fading hard from earlier gains Wednesday after the company delivered a surprise profit. Let's look at the key levels on the chart.
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Shares of Chewy  (CHWY) - Get Report were in the spotlight on Wednesday, up about 7.5% after the company reported earnings.

While the reaction seems great, bulls may be a bit disappointed by the way shares have traded on the day since Chewy was up about 15% in early trading.

Although it still sports a respectable gain, watching those gains get cut in half is likely tough for investors. Particularly when the company delivered a top- and bottom-line beat.

In fact, Chewy delivered a surprise profit in the quarter.

That has analysts praising the results, even though we’re not seeing much follow-through in the share price.

However, this type of post-earnings response isn’t entirely surprising. We saw similar price action from Amazon  (AMZN) - Get Report, Shopify  (SHOP) - Get Report and other e-commerce plays despite solid results.

Let’s see what the charts look like.

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Trading Chewy

Daily chart of Chewy stock.

Daily chart of Chewy stock.

Chewy was in a rising wedge pattern, which allowed it to rise to new all-time highs. On the flip side though, shares cascaded lower once that pattern broke.

The 50-day moving average didn’t provide sufficient support, as the 10-day moving average continued to squeeze Chewy lower.

With the post-earnings rally, we’ve got some pros and cons developing.

On the plus side, Chewy effectively found support in the mid-$70s and cleared short-term resistance near $88. Further, it’s back above the 10-day moving average.

Unfortunately, it’s fading rather hard from its post-earnings high. Additionally, the 100-day and 21-week moving averages — which were strong support in November — acted as resistance on Wednesday.

That leaves us watching a few areas now. Specifically, bulls want to see Chewy find former resistance near $88 to be support. Below risks a test of the 10-day moving average and a gap fill down toward $81.

Below that puts range support in play near $75, along with the 200-day moving average and uptrend support (blue line).

On the upside, look for a close above the 100-day moving average. Above keeps Wednesday’s high in play, followed by the 50-day moving average above that. Over that measure puts $100-plus in play for Chewy stock.