Chewy Inc. Elliott Wave Analysis

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Chewy Inc. (CHWY)

At first thought, Chewy Inc. sounds like the nickname of the “Furry” friend and partner in crime of Han Solo in the Star Wars trilogy.

Well, we are not too far off in terms of the “Furry” friend department.

In a nutshell, Chewy Inc. (CHWY) is one of the leading online retailer for pet food, pet supplies, and any other essentials your furry friend desires.

CHWY is a large cap stock on the NYSE with a market cap of around $28.39 Billion.

And its headquarters is based in Dania Beach, Fl. in the U.S.


Increasing Popularity Of Pet Ownership

Traditionally, pets have been a small but significant part of the U.S. household.

However, the pet ownership situation seems to have improved quite significantly in recent times.

According to the National Pet Owners Survey, recent statistical data in the U.S. showed that pet adoptions increased sharply in 2020 during the early days of the pandemic.

Currently, a whopping 70% of U.S. households now owns a pet.

This is up from 67% a year earlier.

And only just 56% back in 1988.

With 90.5 million homes in the U.S. now owning a furry friend, it is a logical to assume that the pet ownership trend is here to stay.


Flourishing Pet Lifestyle

In the past, leading a “Dog’s Life” used to mean a difficult, boring, and unhappy life.

But nowadays, we can see that some of our furry friends seems to live “Better” lives than us human beings.

Pets owners nowadays seems to treat their cats and dogs as if they are their own “Kids”.

One thing is for sure, pet owners nowadays are not afraid to spur out the cash to keep their furry kids healthy and well taken care of.

Undoubtedly, the quality of pet living has improved significantly in recent years because of this change in mentality.

This emerging trend has certainly propelled online pets suppliers like Chewy Inc. to newer heights.


Fundamentals Overview

Courtesy Of Morning Star

Currently, about 20.1 million active customers rely on Chewy Inc. to keep their pets well fed, active and healthy.

Statistically, this is a 21% increase in customers base from a year ago.

Resulting in 27% boost in net sales for the last quarter.

It doesn’t take an expert to figure out that Chewy Inc. is a fast growing company.

A deeper look at the financials also shows that Net Margins, Gross Margins and EBITDA are all improving.

Chewy has even started to post a modest profit in two of the past three quarters.

This is very promising and could signal a sign of more to come.


Increasing Market Share In A Growing Industry

According to the American Pet Products Association‘s annual U.S. sales metrics tabulation.

If you were to compare Chewy’s annual sales to how the overall pet supply industry in the US is growing.

We can clearly observe an amazing trend developing.

In 2019, Chewy’s $3.5 billion in net sales was 7.6% of the pet industry’s $46.3 billion in spending for the pet supplies industry.

Last year in 2020, Chewy’s $4.8 billion in revenue was 8.6% of the industry’s $56.1 billion market.

Currently, in 2021, net sales of $7.1 billion expanded to 11.1% of the overall $64.1 billion market.

It doesn’t take a mathematical genius to see that Chewy Inc. is rapidly gaining market share in an already expanding pet supplies industry.


Chewy Inc. Elliott Wave Analysis


Technicals Overview

From an Elliott Wave perspective, we are viewing Chewy’s ATH of around $120 in the mid of Feb 2020 as the completion of the Wave ((I)) in Orange.

From the chart above, we can see that the Wave ((I)) in Orange consists of a 5 wave sequence in White in the lower degree.

Initially, I struggled with labelling this leading diagonal in the typical 5-3-5-3-5 sequence.

Some fellow Elliott Wave technicians also commented that the (C)-Leg in Blue in the lower degree is overly extended for both the third and fifth Wave in White.

But after much analysis, I still find that going with a 3-3-3-3-3 leading diagonal sequence make much more sense overall going forward.


Corrective Structure In White

The initial W-Leg in White entered the 50%-61.8% Fibonacci retracement zone as an A-B-C Zig Zag in Blue and subsequently retraced.

But it never broke through the Fibo 23.6% zone located at the top boundary of the down-channel for confirmation of a reversal.

The current Y-Leg in White is again viewed as another A-B-C Zig Zag in Blue.

It has also bounced off the 50%-61.8% Fibonacci retracement zone after making the minimum 61.8% Fibonacci extension of the first leg.


1st Alternative In Green

Currently, we are in the bias that the W-X-Y corrective structure in White might have ended with a relatively short Y-Leg in White.

This is mainly due to the current “favourable” situation of Chewy Inc. in terms of its fundamental situation.

In the lower degree, we also witness the completion of a 5 wave sequence followed by a shallow 3 wave correction.

The strength of the last daily candlestick bar seems to indicate strong momentum going forward.

If it breaks above the Fibonacci 38.2% level located at the top boundary of the down-channel, we could be literally “Letting the dogs out”.


2nd Alternative In Orange

However, as we all know, nothing is set in stone especially in trading.

It is all about “Probability”, period.

That is why we must always be aware of the “Possibility” of another alternative playing out.

Especially in the scenario where fundamental data releases such as earning report misses consensus expectations.

Thus, in the worst case scenario, we are assuming that the Y-Leg in White will be extended.

This might play out either as an A-B-C or a W-X-Y in Blue dropping down to the lower boundary of the down channel.

Coincidentally, this also happens to coincide with either the 78.6% Fibonacci extension zone for a Harmonic Gartley pattern.

Or the 88.6% Fibonacci extension zone for a Harmonic Bat pattern.

Both are my favourite Harmonic setups for a strong reversal.


Summary

To cut a long story short, I am more inclined towards further upside potential for Chewy Inc. based on both the long term prospects of the growing pets sector.

As well as favourable fundamentals based on the Elliott Wave Principle.

Kindly note that this is not financial advice, just my humble opinion.

Share Your Views

How many of my fellow traders agree with me on the Chewy Inc. Elliott Wave Analysis ?

Do comment and share your thoughts in the comments box.


Trade Safe and Prosper.


For more potential trade setup suggestions on the US Stock Markets, check our Blog Posts On US Stocks.


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For more articles on the Elliott Wave Principle, check out our other posts in our Elliott Wave Blog.


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