Chipotle CMG Extends Gain in Strong Uptrend

Nov 5, 2013: 11:29 AM CST

Chipotle Mexican Grill (CMG) continues to be a key example of a strong stock getting stronger, reminding us how important relative strength is when selecting trading candidates.

Let’s update Chipotle’s Chart from the prior “CMG Breakout, Earnings, and Persistent Rallies” post which detailed the stock’s advance and the concept of “strong getting stronger.”

CMG Chipotle Mexican Grill Stock Relative Strength Persistent Uptrend

The volume spikes are from prior earnings announcements, though the primary uptrend in price has persisted since the late 2008 low.

Keep in mind that Chipotle (CMG) shares bottomed ahead of the actual stock market low which was its own form of relative strength.

We continue to see out-performance not just against the broader market, but among similar stocks in the restaurant industry.

Traders generally play ‘flag’ or retracement strategies (note blue lines) to enter swing or position trades into “strong getting stronger” stocks.

Alternately, aggressive traders can enter on breakouts, but even I admit it is psychologically difficult if not impossible to feel ‘good’ about entering a swing trade on a large gap up above a resistance level.

Even after the $40.00 gap up and then $28.00 intraday trend day movement on October 18, Chipotle shares have continued to extend the trend with every day since then being a bullish day (with the exception of two small sell days).

The Weekly Chart pulls back to the perspective and helps shed light on why the $440 level was so important:

Chipotle Mexican Grill CMG Restaurant Stock Weekly Chart Persistent Uptrend Bull Market Trading Stock Scan

On the larger frame, we look to Accumulation/Distribution Cycles (price and volume) where rising volume in a rising trend is a sign of strength and forecaster of higher prices likely yet to come.

A divergence, or ‘distribution’ pattern where price rises yet volume/participation falls suggests the opposite – that a future retracement at a minimum is favored over ongoing trend movement.

As a caveat, see the prior post “Internals and Divergences During a Persistent Trend.”

We can also study a similar lesson – developing at the same time – with Google and it’s breakout (and trend continuity) above $1,000.

Finally, we can reference one of our original posts on the “Strong Stocks Getting Stronger” concept which continues to play out in the broader market at this time.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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