Two-bit is compared to a “Chessy cat,” the malevolently grinning Cheshire Cat from Alice in Wonderland. Two-bit is grinning because he pulled a prank.
In this allusion to Alice in Wonderland, Two-bit is described as grinning in a self-assured, at-your-expense way.
I looked fearfully over my shoulder and there...
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was Two-Bit, grinning like a Chessy cat. (ch 2)
Two-bit sneaks up on Johnny and Ponyboy and pretends to be a Soc to scare them.
The Cheshire Cat is a particularly sneaky grinning cat that Alice encounters, but the term did not originate with the book. In fact, to grin like a Cheshire cat is actually British slang dating to the 18th century. The term “Chessy cat” is an American amalgamation of the term based on the popular children’s book. Either way, it implies being very happy about something and most likely at someone else’s expense.
The allusion to literature is fitting both as teen slang and as a literary allusion. Ponyboy is an avid reader and highly intelligent, so it makes sense that he would have read Alice in Wonderland. Most readers are also familiar with the book, and the sneaky Cheshire Cat, and will likely accept Two-Bit’s sneaking up on Ponyboy and Johnny.
Yes, this is a simile, and it is also an allusion. I have been asked this question several times by students when I taught The Outsiders, and none of them had a clue what the term meant. The "chessy cat" to which Ponyboy refers is a character created by Lewis Carroll in his fantasy classic Alice's Adventures in Wonderland (thus, the allusion). The Cheshire Cat is best known for its "mischievous grin"--like Two-Bit's--and the cat also had the ability to disappear at will; upon vanishing, the grin was the last part of its body to be seen. Carroll did not originate the idea of the grinning Cheshire Cat; it had been referenced at least 100 years prior to Carroll's writing Alice's Adventures in Wonderland.