Pet stock Chewy (NYSE:CHWY) could be the talk of the town

Unusual Call Activity

Everyone loves their pets. Pet care is growing at a rate that should be reserved for tech companies.

Earlier this year Chewy (CHWY) made the IPO debut. The stock looked great and then got crushed. However, their recent earnings were reasonably decent. Revenues grew at high double digits, while EPS, although a loss, didn’t get any worse.

Investors rewarded the stock with a nice bounceback off the lows.

CHWY daily chart

Shares ran back to the recent swing highs and haven’t dropped off. In fact, they’ve started to show some strength.

CHWY hourly chart

While I’d rather see the 13-period moving average stay above the 30-period, it looks more like they’re kissing here than reversing. I like the risk-reward here. The ideal entry would be down at gap fill at $25.50. That’s unlikely.

I’m ok working the trade from here and shooting for a break above the $29.50 high. Once it cracks that level it’s got a clear shot to $31.00. The safe way to trade this would be to take a small position here, add at a break of the $27.25 swing low and again at $26.65, with a final add down at $25.50.

I know that sounds like a lot. The thing is the stock could take off from any one of these levels. You won’t know until it does. That’s why scaling in and risk management is so important. 

Look, if you take a small position and it runs from here, great. Not every trade needs to blast it out of the park. The goal is to maximize your winners and minimize your losses.