Shares of casual dining restaurant operator Chipotle Mexican Grill, Inc. (CMG) have traded in a tight range over the past month and have found themselves consolidating in the bigger picture since late July. The construct of the chart, coupled with a flurry of positive analyst comments, stands to push CMG stock higher and out of the recent consolidation phase sooner rather than later.
The latest positive iteration on shares of Chipotle came Monday when investment banking giant Goldman Sachs Group Inc (GS) resumed coverage of the company, among other restaurant stocks. Goldman gave CMG stock a “buy” rating and a price target of $790, which is well above Monday’s closing price of $657.
The analyst is positive on the stock because of Chipotle’s growth prospects and despite risks on the cost front coming from food inflation.
While certainly not all restaurant stocks are created equal, on the aggregate a good many of them have moved significantly higher in recent weeks, which from a trend-following perspective brings up the notion that CMG stock might have some catching up to do on a relative basis in coming weeks.
CMG Stock Charts
If we look at the multiyear weekly chart of CMG stock, we see that since the 2009 lows, it has moved higher in two distinct and well-defined trading ranges. The first channel broke in the summer of 2012 when the stock took a better breather, which then led to the creation of the next trading range (black parallels) that remains in place to this date.
CMG stock then bumped into the upper end of this range in august, and now is trading smack-dab in the middle of the channel. The Bollinger Bands technical analysis tool shows the blue bands narrowing, which reflects the recent consolidation range in the stock. Traditionally, the more narrow these bands, the higher the chances of a more meaningful directional move in the near term.
Over on the daily chart, CMG stock has a defined diagonal resistance line from the August highs to wrestle with, and a break past there could lead to a faster move higher. The October selloff for CMG stock found support at a previous horizontal resistance area (blue box, i.e., the March and July highs); from there, it quickly bounced along with the broader market and again found resistance at the aforementioned diagonal line.
Over the past few weeks, CMG has coiled up in a tighter trading range and above its 50-day simple moving average.
Active investors and traders could look to buy CMG stock on a daily close above the $667 area, for a move toward the $700 mark and possibly beyond.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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