Signal Says Buy the Dip on Chewy Stock

There's ample pent-up pessimism surrounding CHWY at the moment

Deputy Editor
Jan 28, 2021 at 2:13 PM
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The shares of online pet supply retailer Chewy Inc (NYSE: CHWY) are down 1.4% at $102.75 at last check, though its likely a temporary dip as the broader market looks to stabilize amid an unprecedented battle between retail investors and short sellers. A look at the past year shows CHWY is up 264.2%, and just over a week removed from a Jan. 14, all-time high of $115.27. Even better, a historically bullish trendline a little lower down the charts could help push the equity back toward that record high.

Specifically, CHWY pulled back to its 40-day moving average after a lengthy period above the trendline. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, five similar signals have occurred during the past three years. CHWY enjoyed positive returns one month after 80% of these signals, averaging an 18.2% gain. A similar move from its current perch would put CHWY just above the $121 level, which marks untouched territory on the charts. 

CHWY Chart January 28

Meanwhile, there's still plenty of pent-up pessimism surrounding CHWY. Short interest is rapidly unwinding, down 16.2% in the two most recent reporting periods, and the 13.73 million shares sold short represent a staggering 25.7% of the stock's available float. In other words, it would take over three days at Chewy stock's average pace of trading to buy back these bearish bets.

Meanwhile, puts are popular in the options pits. While calls are outpacing puts on an overall basis, the equity's 50-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 96% of readings from the past year, meaning options players have rarely been more put-biased in the last 12 months. 

 

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