Shares of Chipotle Mexican Grill, Inc. (NYSE:CMG) have rallied nearly 15% over the past two weeks, and in the process, they’ve overcome some pretty significant chart hurdles. Importantly, CMG stock might still be in the early innings of what might turn out to be a huge turning point, making analysis all the more critical right now.
You’ll likely recall that Chipotle has battled a number of food cases — and the resulting fallout — over the past year-and-a-half. This has wreaked havoc on Chipotle stock, shearing shares in half.
While such food scares are to be taken serious by investors, unless a restaurant chain hit by a food poisoning case was already struggling before the case, historically speaking, there is a strong tendency for such stocks to rebound. It’s entirely possible that Chipotle’s best days (in terms of demand for its food) might be behind it, but the move by customers to healthier food choices remains firmly intact, which benefits Chipotle.
So from where I sit, CMG stock stands a good chance to ultimately recover from the past 18 months of selling, at least partially.
CMG Stock Charts
On the multiyear weekly chart, we see that ever since Chipotle broke below its 50-week simple moving average (yellow) in October 2015, it has been on a one-way street to the downside.
However, the downside momentum notably cooled off in 2016, when much of the trading took place in a well-defined down-trending channel. I’ve marked this on the chart with two black parallels.
Over the past couple of months, CMG stock began trading near the upper end of this channel until last week, when it finally managed to release higher and break out of the channel. This also resulted in a break back above the 50-week MA.
The move puts CMG stock in a much more constructive pattern. And from this perspective, the $500 area looks like a next major upside target.
On the daily chart, we note that since summer 2016, Chipotle stock also may have been tracing out an inverse head-and-shoulders pattern with a well-defined diagonal neckline.
Note that the intermediate-term moving averages (50-, 100- and 200-day) are also beginning to show some separation as a result of last week’s breakout rally. That’s further testimony to the importance of last week’s move.
From here, CMG stock may be somewhat stretched in the immediate-term. Still, active investors could look to establish initial and partial long positions with a first upside price target around the $500 mark.
Chipotle is scheduled to report earnings on April 25, which is the next major toggle date for the stock. Like many breakouts, Chipotle could be in for some backing and filling back toward the breakout neckline around the $430-$440 area before ultimately moving higher.
Barring a complete meltdown and retracement of the recent rally, I would suggest buying CMG stock after any consolidation phase followed by a confirmed bullish reversal.
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