Chipotle Mexican Grill, Inc. (CMG) Stock: It’s Decision Time

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Shares of burrito outfit Chipotle Mexican Grill, Inc. (NYSE:CMG) are lower by close to 20% year-to-date but about 50% off their summer 2015 highs.

Chipotle Mexican Grill, Inc. (CMG) Stock: It's Decision TimeIn other words, the trajectory for CMG stock remains lower through the lens of trend following. The stock is now weighing heavily on an obvious and important technical support line from which a better directional move could soon take hold.

When Chipotle reported its latest financial results on July 21, it missed analyst expectations for both its top and bottom lines and showed a big drop in revenue on a year over year basis. The company however said it still opened nearly 60 stores in the second quarter and that its new loyalty program was off to a good start.

The stock reacted positively the following day and rallied about 6%. That, however, has been the peak of excitement for the stock since as it began its slide lower shortly thereafter.

For traders and investors over the years Chipotle has been a classic tale of greed and the fear of missing out on a great growth story. However, each time the stock became overly extended through the lens of technical analysis, it came back down to earth.

The question that longer-term investors in CMG stock ask themselves now is how long the E. coli scare from the summer and fall of 2015 will continue to weigh on the company’s image and as such, whether the company can ever again trade at the elevated multiples that it did in 2015.

I will leave these longer-term ponderings to fundamental investors to try and figure out. I am for the time being more interested in the stock’s next 10% move.

CMG Stock Charts

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On the multiyear weekly chart, we see that CMG stock — since topping out about twelve months ago — has now also broken below the 2009 support line as well as horizontal support (blue bar). From a trend-following perspective, this should all point to further lows in the stock, but I will stress that any sharp bullish reversal will need to be respected.

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So, what does all of this mean for the near-term and what can we depict on the daily chart?

Following its July earnings report, CMG stock briefly rallied, but only managed to put in yet another lower high. The stock has since moved back down to its January lows.

What is needed at this point to ‘save’ the stock from breaking below this support line and moving further into the mid-to-high $300s is some positive news that gaps the stock higher. Absent such a headline, CMG stock looks to soon resume its trend lower.

Active traders and investors can set up trades in several ways here. A simple put or put spread strategy could do, or just simply shorting CMG stock in manageable size.

Alternatively for the more savvy options trader, one could look to buy straddles or strangles to take advantage of a move in CMG in either direction and a potential rise in implied volatility.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/08/chipotle-mexican-grill-cmg-stock-decision/.

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