Here’s the update on Chewy ($CHWY), and an idea on Endo International ($ENDP) (December 12, 2019)
CHWY ENDP
I want to look at a couple of stocks here. First, just following up on Chewy ( NYSE: CHWY ). This was a stock, remember, I covered this back on the 10th, on Tuesday, because the company announced earnings that were disappointing. The stock gapped down, traded even lower and then snap hooked reversed and closed higher on the day on volume; this is big massive more than twice average volume, so that was our buy signal right there. I started a position towards the end of the day I wasn’t watching it. To be perfectly honest with you I never even knew this company existed but somebody in the forum mentioned it and so, bam, there it is.
So you are buying the stock here, the next day it gaped up, imagine my delight. Then the following day, meaning today, the stock gaps up again. So let’s look at the patterns here. First of all, this is trading well outside the upper Bollinger Band; that is kind of not supposed to happen. You don’t really see stocks do that at all here; every once in a while it will push outside the Bollinger Bands one way or another and then immediately reverses. Here it barely poked its head above the upper band and then immediately reversed.
Well here we got the initial move here outside. Then the next day it’s outside again but then it reversed, and then the next day outside again. So it is like one, two, three days the price moves above the upper Bollinger Band for five days in a row the stock is outside the upper Bollinger Band. That is just not supposed to happen, it is almost kind of like against the law of statistics and that’s why the Bollinger Band is expanding, it is really racing, trying to chase and find the stock.
Here’s the thing though, we don’t know how high this thing is going to go so I think you need to be more thinking about your downside. I would stay long the stock. You are not going to get out right at the top by this strategy. I would set my stop, right now, at like $26.95. The idea is, I am going to stay long the stock as long as it continues to print higher intraday lows and higher intraday highs. And since today’s intraday low was 27.01 then I will only be stopped out if the stock prints a lower intraday low.
If it does that then my thesis is that the big buying spurt is over; not saying that the stock might not ultimately move higher but I am trading this kind of order flow thing. And after three big days, remember, they don’t have a 5-day rule or and 8-day rule, it’s a 3-day rule. The smart money is buying on the first day. The semi-smart money is buying on the second day. The dumb money is buying on the third day, so lord only knows who’s buying on the fourth day. That is something that you might want to look at.
Another one and I cover this in the Strategy Session but I thought I would show you this ( NASDAQ: ENDP ). This is a cheap stock, $4.00, trading right off the 50-day moving average so you can actually buy this stock here. You have to give it a little more of a wide berth because it is a lower dollar stock, give it about 8 percent, that’s a big stop for me, maybe even a little bit more than that. The idea is, this stock had a big reversal here, down over 20 percent. Now it’s finding some support, we want to see some follow-through here.
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