The Dania Beach, Florida-based online retailer of pet food and other pet-related products, Chewy Inc. (NYSE: CHWY) seems to be poised for a price surge in the near-term.
Bullish Indications
#1 Channel Breakout: The daily chart of CHWY shows that the stock was trading within a channel for the past few months. This channel is marked on the daily chart in pink color. Currently, the stock has broken out of the channel. This seems like a possible bullish indication.
Daily Chart – CHWY
#2 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has started to rise from below both (+DI) and (-DI). These point to a possible upmove in the near-term.
#3 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color).
This is a possible bullish setup.
#4 Above MA: The stock is currently trading above its short-term moving average of 50-day SMA.
This indicates that the bulls are currently in control.
#5 IH&S Pattern Breakout: The weekly chart shows that the stock was forming an inverted head and shoulders pattern. This pattern is marked in the chart in orange color. A breakout from a bullish pattern like IH&S pattern indicates the possibility of an upmove. Currently, the stock has broken out of the IH&S pattern, indicating possible bullishness.
Weekly Chart – CHWY
#6 Bullish MACD: The MACD line (blue color) is above the MACD signal line (orange color) in the weekly chart as well, indicating possible bullishness.
#7 Bullish Stochastic: The %K line is currently above the %D line in the stochastic and is currently moving up. This indicates possible bullishness.
#8 Bullish ADX and DI: In the weekly chart as well, the ADX indicator shows bullishness. This is because (+DI) is greater than (-DI), and ADX is starting to rise from below both (+DI) and (-DI). This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for CHWY is above $35.
TP: Our target prices are $40 and $45 in the next 3-6 months.
SL: To limit risk, place a stop loss at $31.60. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 14% to 29% in the next 3-6 months.
For a risk of $3.40, our first target reward is $5.00 and the second target reward is $10.00. This is a 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel breakout level and the inverted head and shoulders pattern breakout level, with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any new government rules or regulatory changes in its sector.
Happy Trading!
Tara
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