EMA Compression Breakout Trade Forming in Chipotle CMG

Sep 26, 2014: 10:36 AM CST

Chipotle shares (CMG) are forming an “EMA Compression” trade set-up which is a specific type of breakout pattern.

Let’s see the chart, note the trigger levels, and plan a strategy for those interested in this high-priced stock.

A few things jump off the chart at us at first glance.

First, there’s the price pivot point at the $600 per share level (yellow highlight) which serves as a downside target on a bearish breakdown.

The second factor is the retest of the gap near $645 and the current “EMA Compression” pattern.

The “EMA Compression” pattern refers to price holding support at the rising 50 day EMA (blue) but finding resistance slightly overhead from the declining 20 day EMA.

As the saying goes, “Something’s gotta give” which means that traders can use breakout strategies on a firm movement above the falling 20 day EMA or beneath the rising 50 day EMA.

The simple “Bullish Breakout” (and trend continuity) pathway suggests a rally toward or even above the prior high above $680 while a “Bearish Breakdown” (steeper retracement) pathway targets the $600 support confluence.

Treat breakout patterns as neutral and don’t assign a bull or bear bias until price “proves itself” and forces traders to act on the breakout (rather than trying to predict the breakout while price remains in consolidation).

We can see the picture clearer on the intraday chart:

A pure price plus Fibonacci Retracement grid shows the key inflection point now – along with the 50 day EMA – is the $650 level which is the 38.2% Fibonacci Level as drawn.

Again, it is also the “gap fill” price from August 22.

In sum, a bearish breakdown (that isn’t a bull trap) under $650 suggests an immediate downside play toward the $637 “halfway” point, then $622, and finally the $600 per share level.

And of course the upside breakout pathway with a trigger beyond $670 suggests a play to the highs near $690 per share.

Focus on these levels and the breakout/impulse trades that may benefit from a successful breakout and movement toward one of these targets.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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2 Comments

2 Responses to “EMA Compression Breakout Trade Forming in Chipotle CMG”

  1. Tight Range Compression Continues and Breakout Awaits for Chipotle CMG | Afraid to Trade.com Blog Says:

    […] initially highlighted this “EMA Compression” last week and wanted to provide an update as shares continued the […]

  2. Tight Range Compression Continues and Breakout Awaits for Chipotle CMG - Trading Your Own WayTrading Your Own Way Says:

    […] initially highlighted this “EMA Compression” last week and wanted to provide an update as shares continued the […]