CMG Challenges Weekly Resistance on Daily Divergences
Jun 11, 2010: 11:31 AM CSTNow this is interesting – Chipotle Mexican Grill – CMG – is currently a popular, high-flying restaurant stock that I’ve been hearing mentioned around the Trader’s Expo here in Los Angeles.
Naturally, I had to take a look at the chart. It’s at a very interesting inflection point, and it warranted a blog post to highlight the current chart structure.
Let’s start with the Weekly Chart to see that CMG is bouncing up into a prior long-term price high:
The long-term pattern is similar to a “Mirror Image” reversal, or a “V-Spike” reversal (reference the bottom in November 2008).
Price has completed a full retracement back to the prior $150 per share high achieved in December 2007.
Chartists often reference major prior price highs as key levels to watch that could form current resistance – that means we don’t want to load the boat with CMG shares while we’re under this level, and only get long above the level.
That’s not saying that price has to come down here – but that it’s probably a better play from a risk/reward standpoint to “wait and see” who wins the battle of $150 – bulls (above) or bears (under).
As if the weekly chart wasn’t interesting enough, the daily chart is showing something strange, which reflects the “Battle” at this level:
First, we’re seeing a negative momentum (3/10 Oscillator) divergence as we head into the $150 level. That’s a non-confirmation.
Beyond that, we’re seeing two long upper shadows – specifically shooting stars – as we tested the $150 level in May and June. That’s a bearish non-confirmation.
However, we’re also seeing bullish hammers that bounce off the rising 50 day EMA as labeled.
For now, we have a crystal clear rising trendline pattern with key support at $135 and key resistance at $155.
The “IF/THEN” play for this stock appears to be bullish/neutral while inside the channel, bullish breakout above $155, and bearish ‘deeper’ retracement expected (back to $115 or lower perhaps) if under $135/$130.
Technical analysis is very helpful for assessing risk/reward and potential pathways forward, particularly once price comes into a critical “decision” level.
CMG is at such a level.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
