PEG Continuation Trade - Ticker: $CHWY
Setup: PEG Continuation
Key Criteria:
1. Market Cap of $10 billion or more.
2. High Relative Volume on Close (2Rvol+).
3. Ideally, the price has reached a key daily/weekly support or resistance zone without gapping into a range (i.e., not in the middle of a range).
4. The stock is "in play" or on the verge of forming a new trend.
Specifics for CHWY:
* Market Cap: $12.52 billion
* Share Float: 118 million
* Short Float: 12.58%
* Average Volume: 10.99 million
* Relative Volume: 3.13
* Catalyst: Recent earnings release
* Current Trend: In play
Trade Details:
* Position: Long
* Entry Price: $30.62 (High of Day)
* Stop Loss: $28.50 (below intraday pivot and VWAP close)
* Risk: 0.75% of account equity
* Order Type: Buy Stop Order
Targets:
1. Target 1: $35.21 (2.17R) — Weekly Fair Value Gap (FVG) resistance.
2. Target 2: $36.30 (2.68R) — Weekly Fair Value Gap (FVG) resistance.
Exit Techniques:
* Scale out 33% of the original position size at Target 1 ($35.21).
* Scale out another 33% of the original position size at Target 2 ($36.30).
* Exit the remaining 34% based on a "Reason2Sell" (R2S) approach, which includes:
* Price Reversal Patterns: Double tops, head and shoulders, falling wedges.
* Overbought Conditions: RSI exceeding 70.
* Negative Divergence: Price makes a new high, but technical indicators do not confirm.
* Support Level Breakdown: Price breaking below a significant support level.
* Increased Volatility: A sudden surge in volatility or trading volume indicating potential selling pressure.
Reasoning:
CHWY presents a potential short squeeze opportunity, given its 12.38% short float and multiple rejections of the $30 level on the daily chart. The stock shows signs of bottoming, with prices holding above $24 and currently trading above the Anchored VWAP (AVWAP) from the last earnings. The trade idea is to go long above the High of Day (HOD) with a stop loss at VWAP, targeting a move towards $36+.
The trade is also influenced by NVDA's earnings, which caused CHWY to gap down after hours. While it's unclear if dip buyers will sustain the stock's recovery, CHWY, as a pet food stock, may attract different investor interest compared to AI-focused stocks like SMCI. The strategy is based on solid earnings, key support and resistance levels, and a daily chart showing consolidation following significant market activity.
Earnings Recap:
* Net Sales: $2.86 billion, a 2.6% increase year over year.
* Diluted EPS: $0.68, up $0.63 year over year.
* Adjusted EPS: $0.24, up $0.09 year over year.
* Gross Margin: 29.5%, up 120 basis points year over year.
* Net Income: $299.1 million, including $82.5 million in share-based compensation and related taxes.
* Net Margin: 10.5%, up 980 basis points year over year.
* Basic EPS: $0.70, up $0.65 year over year.
“Our Q2 performance reflects another quarter of strong execution, delivering net sales at the high end of our guidance range,” said Sumit Singh, CEO of Chewy. “Chewy’s compelling value proposition is driving broader and deeper customer engagement, as reflected by our 20 million active customers, which grew sequentially in the quarter, and net sales per active customer of $565, a new record for the company.”
Stop Loss Strategy:
* The stop loss will be updated after the first profit target is reached and shares are scaled out.
Additional Notes:
* Set orders to automatically scale out shares. If the take profit (TP) is hit and you are still holding the full position size, manage your risk accordingly.
* If you have any questions, please feel free to ask. I'm here to support and help you become a consistent trader.
Position Sizing:
* Details will be provided soon.
Key Criteria:
1. Market Cap of $10 billion or more.
2. High Relative Volume on Close (2Rvol+).
3. Ideally, the price has reached a key daily/weekly support or resistance zone without gapping into a range (i.e., not in the middle of a range).
4. The stock is "in play" or on the verge of forming a new trend.
Specifics for CHWY:
* Market Cap: $12.52 billion
* Share Float: 118 million
* Short Float: 12.58%
* Average Volume: 10.99 million
* Relative Volume: 3.13
* Catalyst: Recent earnings release
* Current Trend: In play
Trade Details:
* Position: Long
* Entry Price: $30.62 (High of Day)
* Stop Loss: $28.50 (below intraday pivot and VWAP close)
* Risk: 0.75% of account equity
* Order Type: Buy Stop Order
Targets:
1. Target 1: $35.21 (2.17R) — Weekly Fair Value Gap (FVG) resistance.
2. Target 2: $36.30 (2.68R) — Weekly Fair Value Gap (FVG) resistance.
Exit Techniques:
* Scale out 33% of the original position size at Target 1 ($35.21).
* Scale out another 33% of the original position size at Target 2 ($36.30).
* Exit the remaining 34% based on a "Reason2Sell" (R2S) approach, which includes:
* Price Reversal Patterns: Double tops, head and shoulders, falling wedges.
* Overbought Conditions: RSI exceeding 70.
* Negative Divergence: Price makes a new high, but technical indicators do not confirm.
* Support Level Breakdown: Price breaking below a significant support level.
* Increased Volatility: A sudden surge in volatility or trading volume indicating potential selling pressure.
Reasoning:
CHWY presents a potential short squeeze opportunity, given its 12.38% short float and multiple rejections of the $30 level on the daily chart. The stock shows signs of bottoming, with prices holding above $24 and currently trading above the Anchored VWAP (AVWAP) from the last earnings. The trade idea is to go long above the High of Day (HOD) with a stop loss at VWAP, targeting a move towards $36+.
The trade is also influenced by NVDA's earnings, which caused CHWY to gap down after hours. While it's unclear if dip buyers will sustain the stock's recovery, CHWY, as a pet food stock, may attract different investor interest compared to AI-focused stocks like SMCI. The strategy is based on solid earnings, key support and resistance levels, and a daily chart showing consolidation following significant market activity.
Earnings Recap:
* Net Sales: $2.86 billion, a 2.6% increase year over year.
* Diluted EPS: $0.68, up $0.63 year over year.
* Adjusted EPS: $0.24, up $0.09 year over year.
* Gross Margin: 29.5%, up 120 basis points year over year.
* Net Income: $299.1 million, including $82.5 million in share-based compensation and related taxes.
* Net Margin: 10.5%, up 980 basis points year over year.
* Basic EPS: $0.70, up $0.65 year over year.
“Our Q2 performance reflects another quarter of strong execution, delivering net sales at the high end of our guidance range,” said Sumit Singh, CEO of Chewy. “Chewy’s compelling value proposition is driving broader and deeper customer engagement, as reflected by our 20 million active customers, which grew sequentially in the quarter, and net sales per active customer of $565, a new record for the company.”
Stop Loss Strategy:
* The stop loss will be updated after the first profit target is reached and shares are scaled out.
Additional Notes:
* Set orders to automatically scale out shares. If the take profit (TP) is hit and you are still holding the full position size, manage your risk accordingly.
* If you have any questions, please feel free to ask. I'm here to support and help you become a consistent trader.
Position Sizing:
* Details will be provided soon.
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