With the stock market looking to close out an epic fourth-quarter run and overall 2023, investors and traders continue to look for opportunities in beaten-down areas of the market. 🕵️♂️
One of the stocks popping up on traders’ radars today is online pet retailer Chewy. The last time we checked in on the stock was in September when the trend of investors ditching unprofitable companies pushed shares to new all-time lows.
However, it’s back on the table today for a better reason. 👀
The short-term catalyst for today’s 9% pop was Jeffries initiating coverage on the stock with a buy rating and $27 price target. The analyst said Chewy should benefit from increasing pet e-commerce penetration and premiumization of pet products.
Whether or not they’re right on the business was almost a side conversation today, as technical analysts focused on the stock reclaiming a key broken support level. The $21-$22 level has been a significant inflection point throughout the stock’s history. And some traders argue today’s move back above that level marks a significant turnaround in the stock’s momentum. ⏪
Technical analysts like to call this type of situation a “failed breakdown,” where sellers believe they’ve got clear control of the stock, but bulls battle back and reclaim a key level. That situation traps sellers who exited the stock (or shorted it) and creates a lot of forced buying, especially in cases like Chewy where the stock has significant short interest (currently about 18%). 😬
We’ll have to see if this turns out to be the bullish catalyst traders think it is. But for now, the dash for trash continues, and Chewy is the latest beneficiary. 🥳