CMG Stock – How to Trade Chipotle After Earnings

Advertisement

Shares of Chipotle Mexican Grill, Inc. (NYSE:CMG) have rallied sharply over the past week-and-a-half along with the broader stock market. As a result, CMG stock has arrived at a technically important area, which depending on how the stock reacts around it after earnings, could be a good tell for the direction in coming months.

beat the bell chipotle tradeWhen Chipotle Mexican Grill announces its second-quarter earnings after the close of trading July 21, CMG is expected to come in with earnings of around $4.46 per share on revenues of $1.22 billion. Guidance will be the thing to focus on as the company’s growth metrics will likely continue to be the driver for movements in the stock.

After each of the last three earnings reports, CMG stock moved about 7% on the day, so shares stand a good chance of making a notable move this time around again as well.

For purposes of reference and transparency, when I last discussed my views on CMG stock on April 29, the stock looked weak and at risk of falling further. The stock proceeded to drop as I suggested. By mid-June, Chipotle began losing downside momentum near the $600 area, which was a sign to take profits in short positions.

CMG Stock Charts

Looking at the price chart of CMG stock through a multiyear lens is a reminder that strong stocks tend to stay strong, which in essence is what makes trend following a successful strategy. Every once in a while, a strong stock will consolidate in price (lower) and push below obvious support lines, only to fake out the bears and to rally back strongly.

Earlier this year, CMG stock — when it broke below its multiyear support line (red dotted line) in April — may have done just that, although it is too early to tell with the earnings report looming large on July 21. The rally in recent days has brought the stock right back up to the red dotted line of support, which may now act as resistance. Bulls, however, will point out that the price action since the January top may have been consolidation as it looks to have taken shape in a bull flag pattern (black parallels).

CMG weekly stock chart
Click to Enlarge

On the daily chart we see that the 10% rally over the past week-and-a-half has brought it back toward the 200-day simple moving average (red line), which served as a good line of reference in the April period. Note that the stock also still trades below the black diagonal resistance line (former support). The bulls also point to the fact that the down-gap from April 22 (blue box) is not yet filled, and could be an upside target after next week’s earnings report.

CMG daily stock chart
Click to Enlarge

Active investors and traders could look for an up-gap and rally after the earnings report to be a bullish sign that the stock moves toward the mid $700s in the second half of 2014.

If the stock were to sell off, one would need to see how long the selling lasts, which is to say that if after a couple of days of weakness Chipotle again regains its footing and flashes a bullish reversal day, a buying opportunity could again arise that also would be a bullish sign for the rest of 2015.

Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!

Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/07/cmg-stock-trade-chipotle-mexican-grill-inc-earnings/.

©2024 InvestorPlace Media, LLC