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Petting for Profits (PETM)

|Includes: PetSmart, Inc (PETM), PETS

A lot of interesting names on the new multi-year highs list this week, including a few stocks that cause me to pause ... possible signs of frothiness?  But, there have been quality blue-chip type names showing up that I've highlighted over the past year.  One company make new all-time highs that caught my eye is PetSmart (NASDAQ:PETM).  They operate a giant chain of pet supply stores, and also have pet hospitals and hotels under their umbrella.  Fundamentals on PETM look decent to me for a retail company -- P/E Ratio going forward may be a bit higher than I would like but Return on Assets and Equity both look very healthy and indicate a well-run company.  Dividend a bit over 1% and a fairly small float of 111 million shares.

We focus on shorter-term charts and technical indicators for our real-time option trading recommendations.  But taking a look at the long-term Monthly chart of PETM below, you can see that we recently took out a "double-top" around the 35 level that constrained the shares in 2004 and 2007.  Beyond being a technical breakout -- there is a logical basis to why we technicians like such a move -- there was a great deal of long "supply" of stock around that area.  Twice before it had failed there, so there obviously are sellers of the stock in that area -- those have now been taken out.  Also, there were those who got long around 35 and have waited to exit around a break-even.  Those also have likely been removed, thus leaving the stock much more clear on a supply/demand basis for upside potential.

PETM Monthly Chart


Also like the support the shares have from the uptrending 10 and 20 month simple moving averages (yellow and purple lines).  These trendlines constrained pullbacks in the stock consistently in the early 2000s during a big bull run in the stock.  Bottom line:  PETM looks attractive for purchase on pullbacks to the 35/36 area.

Dislcosure:  No current holding in PETM stock or its options.

Disclosure: No positions.