Finding the Key Short Term Levels in CMG

Apr 30, 2012: 3:55 PM CST

Many traders have been following the stellar move in Chipotle Mexican Grill (CMG) though the recent sharp pullback has spooked many participants.

Let’s take a look at the key short-term price levels (and chart structure) to watch for potential opportunities in the weeks ahead.

First, the Daily Chart levels:

Two main levels have developed on the chart, which are emphasized on the intraday chart below:

  • The first is the Upper Resistance from the falling 20d EMA at $420.
  • The second is t he Lower Support via the rising 50d EMA ($404) and “Round Number” support at $400 which is also the April 2012 swing low.

Luckily, these serve as easy reference levels:  $400 and $420.

Let’s take a moment to discuss a few more factors from the Daily Chart before focusing on these levels.

The most obvious development is the “creeper” power-rally through early 2012 that provided an extra-stable angle of ascent in price – you just don’t see patterns this clean very often.

The rally produced a mini-bull flag  and successful retracement test of the rising 20d EMA in early April.

From there, price pushed one more time to $440 ahead of the sharp retracement/decline that brings us to our current position between these two “Bull/Bear” reference levels.

The potential for a trend reversal exists IF price breaks under the $400 level – that’s something CMG Bulls must watch carefully.

However, the Bears must be on guard for a turn-around rally and breakthrough above the $420 pivot level – a move above $420 suggests a resumption of the uptrend and continuation swing back to $440’s high.

These will be the two objective scenarios that lead us to the game-planning in real-time:

Bullish for Trend Continuity if above $420 or Bearish for Trend Reversal under $400.

The intraday chart clarifies the picture:

The intraday chart with the recent volume and momentum divergences – at the moment – tends to favor the Bears as long as price remains under the $415 pivot (EMA confluence).

The potential for a “short-squeeze” exists between $415 and $420 (the ‘neutral’ zone).

Finally the Bullish Breakout Buy trigger develops above $421 and $422 (to be safe).

If you’re active in trading CMG shares or options, keep these levels in mind in combination with additional signals/trades you are managing.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

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Comments
  • Corey great presentation of a very shortable stock, as the risk on trade switched to risk off today.

    In my article ... Stocks Trade Lower As Investment Angst Rises Over Spain's Bank Debt And Spain's Economic Report ... http://tinyurl.com/75ymrgo ... I relate that an inflection point occurred today whereby stocks will forever be trading lower.

    I recommend that one buy gold bullion as an investment and silver for bartering, as these will be the only "money good" means of preserving wealth. But for those who do not have that type of conviction, I provide in my report a Finviz listing of momentum stocks that one might want to consider shorting.

    The fiat money system has died on the inability of neo liberal finance to solve the European Sovereign debt crisis. The diktat money system is rising in its place. This means that diktat will serve for both money and credit. Capital controls are likely coming real soon. That is why I recommend that one cease all trading activity. Yes, I am not definitely too afraid to trade, because I may not have access to my money.

    Best to you, and to all.... very difficult economic and political days are ahead for everyone.   

  • Kobe

    Great work as always Corey.

    My observation on The way CMG trades is that it has benefitted from a very low float and is dominated by algoritmic traders who run it up and dowm - mostly up - seemingly at will.

    That said, the stock is extremely ahead of its fundamentals, so it will be interesting to see if it cracks, how far it maty fall.

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