Chipotle Mexican Grill, Inc. (CMG) Stock Slowly Nears Bigger Picture Buy Area

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Shares of Chipotle Mexican Grill, Inc. (NYSE:CMG) have served as the latest pinata for investors and traders alike, as the E. coli “issue” is causing widespread uncertainty.

Chipotle Mexican Grill, Inc. (CMG) Stock Slowly Nears Bigger Picture Buy AreaSome empty Chipotle restaurants and parking lots are proof that customers, too, are steering clear of the restaurant chain.

But let’s cut the noise for a minute and examine the current price of CMG stock after the beat down — through a longer-term lens, this could be an attractive buying point for the patient trader and an interesting oversold bounce area for the more active investor.

No one likes uncertainty, as it can break even the strongest of cult stocks. For years, Chipotle was one of the strongest trending growth stocks, as anyone from millennials to baby boomers flocked to the burrito chain with the organic touch.

But when news of a possible E. coli outbreak at Chipotle restaurants hit, it quickly set in motion a steep and severe selloff that pushed the stock lower by around 27% on the year.

Investor mood on the stock has soured, and analysts are still busy downgrading the stock at current levels in the high $400s … after a 35% drop off the October highs. Thanks for coming out, guys. Earlier this week, for example, JPMorgan Chase downgraded the stock from an “overweight” rating to a “neutral.”

CMG Stock Charts

But let’s notice where shares of CMG are now trading to/at from a multi-year perspective. For one, and as I always point out, gravity works just as well in the stock market as it does in nature: When a stock rallies too much and gets too far removed from its longer-term trend lines, it ultimately mean-reverts sharply.

This is also exactly what is taking place in CMG stock right now; the stock’s sharp rally off the 2012 lows increasingly removed it from the longer-term support line and ultimately the air simply got too thin and the stock came crashing down. A mean-reversion move back to the support line, which currently is in the low $400s would also fill a still unfilled up-gap from October 2013 as marked by the blue box.

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On the daily chart we see that CMG stock has already found an initial potential near-term bounce area, made up of support from 2014; but better support yet (as referenced on the previous chart) would be in the lower $400s after a gap-fill of the blue box.

Momentum as represented by the RSI indicator is also showing some positive divergence, but of course, price is the only arbiter, which is to say that price first must give us a clear bullish reversal on all time-frames for a better reward/risk setup to complete.

Longer-term investors may find opportunities legging into some initial small long positions in CMG stock at present levels, or sell longer-term out-of-the-money puts or put spreads. More active investors and traders will first want to see a strong bullish reversal, i.e. washout selling followed by a sharp bounce, take place that would signal a capitulation by the last of the bulls.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/chipotle-mexican-grill-cmg-stock-trading/.

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