Owning a pet nowadays just isn’t like what it once was.
When I grew up, having a pet was like — well, having a pet. Nowadays, having a pet is like having a child.
People these days, especially millennials, will go to extraordinary means to care for their furry friends in ways we have not seen before.
People pamper their pets with specially formulated shampoos, feed their pets based on special dietary restrictions and weight loss plans, supplement them with special treats like expensive calming CBDs — and of course, spoil them with lots of toys (frisbees, rubber chews, tug ropes).
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Overall, the total money spent on pets in the year of 2019 is an estimated $75.38 billion.
That’s one heck of a lot of money, which is why I want to take some time today to walk you through a trade idea in Chewy (CHWY), a pet company that just IPOed this year after having bitten off a sizeable piece of this industry.
When Ryan Cohen co-founded Chewy in 2011 at the age of 25, he started with the hunch the online pet industry space was severely lacking in the customer service department.
Around that time, Amazon was continuing to amass a user base and to Cohen it felt too much like a flea market.
Sure, you could read some product reviews by other customers, but Amazon simply wasn’t meeting the increasing demand of people who wanted a much more personalized experience — the kind they could get by visiting the local pet store.
Fast forward to today — Chewy offers a 24/7 hotline, and perks such as handwritten letters when you buy your pets first product from them or flowers when your pet passes away.
Chewy has almost literally leapfrogged past Amazon in this space by being obsessed with their customers.
Thanks to this success, the company was bought out by PetSmart for $3.35 billion in 2017, and proceeded with an IPO earlier this year.
For all of these reasons, I’m feeling like the fundamentals in Chewy are very strong right now.
While the company saw mostly sideways trading action in the first few months since it’s IPO and then took a dip, the technical stars have been aligning lately in what I think could be a new leg up.
Here’s exactly what I’m seeing…
After Price Dip, Chewy Looks Ready for a New Leg up
CHWY currently has around 44M shares outstanding and a short interest of 32.92%. What that tells us is that the stock could be primed for a short squeeze.
When you look at the daily chart below, CHWY looks like it could break out very soon.
The most interesting part about this trade idea is the fact that CHWY already went through its lockup expiration, and brushed it off. You see, typically, when a company approaches its lockup expiration, it gets beaten down… due to the anticipation of insiders selling to turn a profit.
With CHWY, the stock dropped a few weeks prior to the lockup expiration date. However, it quickly found support at $22 and formed a double bottom pattern. Shortly after, the stock caught a bounce and broke above its downtrend line.
Currently, CHWY is forming a bull flag setup right around a key resistance level at $30.
If it can break above, I wouldn’t be surprised to see the shorts scramble to cover. In turn, this would drum up demand for the stock and potentially attract momentum buyers, which would further increase the demand… and the shorts could be squeezed into a pulp very soon.
The technicals, statistics, and story behind CHWY is too good to ignore at these levels, so I’ll be keeping an eye on CHWY, and I’ll be sure to let my clients make a move. However, since it’s New Year’s Eve, I’m going to remain patient because trading volume will probably be light. Not only that, but the markets will be closed tomorrow.