Technical Indicators for Chipotle Could Swing to 'Buy'

Short sellers should now be worried about Chipotle. Its fortunes might be turning, despite E. Coli scandal.
By Ken Goldberg ,

Chipotle Mexican Grill's (CMG) - Get Report latest woes have battered share prices to levels that are now flashing warnings if an imminent end to the decline, at least temporarily, from the October swing reversal, near 760.  

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With stochastics crossing up from the oversold extreme below 10%, prices approaching the lower 2 standard deviation band (containing 95% of normality), which is the olive/gold line around 585 currently, and prices about to test the intersection of the lower green box and the green oval, our decision support engine's "pendulum" indicator has stalled, and is threatening to change directions. When it does, the selling actions that have been indicated since the September 13 reversal in price and stochastics, will no longer be indicated, and buying actions will be.

Two conditions can trigger this reversal and whichever happens first will tip the scales to force the decision support engine to issue an active buy signal. One is that the 630 level be closed above. The other is for a new low below 608. Here's what you should do: 

Therefore, if short currently, the decision support engine suggests using 630 as your buy stop level to lock in profits on the short, and reverse to long exposure, as a rise toward the pink box (675 +/-15) is highly favored. If 608 is seen first, lower buy stops to 615, or use buying actions to cover shorts below 608. There is little chance of 585 breaking, so if lucky enough to get that opportunity, sub-600 would be considered a home run. If flat, all of these parameters should be considered to establish and add to long exposure, so the rally to the pink box can be enjoyed by being in the game, rather than from the sidelines. If already long, maintain exposure, or add, at these levels, too.

Be alert, though, as after this short-to-intermediate term rise is over, and the pink box is probed, Chipotle should experience an even scarier decline that of the last few months, as 450 +/-75 remains the target for the coming 12-to-18 months.

For now, however, selling is no longer optimal, and buying actions are about to be.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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