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How to Trade Chipotle After the Earnings Report

Chipotle has been trading near its high. Here's how to trade it once the burrito chain reports earnings on Wednesday.

Chipotle Mexican Grill  (CMG) - Get Chipotle Mexican Grill Inc. Report is on investors’ radar as the stock hovers near its highs and with earnings due up on Wednesday after the close.

The stock has done quite well during the pandemic, up 84% in the past 12 months.

Fueled by its online and mobile-ordering efforts, Chipotle finds itself at an interesting junction: It’s both a pandemic play and a reopening play.

Consumers have found comfort and convenience by ordering from Chipotle, but the Newport Beach, Calif., burrito chain should also benefit from a rise in restaurant traffic as the U.S. continues its impressive vaccination efforts.

As the economy reopens, Chipotle should continue to benefit. Starbucks  (SBUX) - Get Starbucks Corporation Report is in a similar position as Chipotle and so is its stock, which hovers near 52-week highs as well.

Can the earnings report help propel Chipotle to new heights?

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Trading Chipotle Stock

Daily chart of Chipotle stock.

Daily chart of Chipotle stock.

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A look at Chipotle's chart shows us just how strong this stock has been. The shares rotated over last month’s high (at $1,511) after a big rip and continue to consolidate above that mark now.

On the upside, the rally took Chipotle stock up to $1,565, which was the high from earlier this year. This level is now acting as resistance.

Although it’s tight, this leaves us with a very clear trading range.

On a bullish earnings reaction, I want to see Chipotle stock clear $1,565 and close above the current all-time high, $1,579.52.

Above that opens the door to $1,600-plus and could set the stage for a longer-term rally up to the 261.8% extension near $1,790.

On a bearish reaction, the situation is more mixed. In fact, if earnings weren’t in play on Wednesday evening, this would be an ideal area to consider a long position. 

After an extended run, the shares are testing back down into the 10-day moving average and are just above the March high. A close below the March high would signal our exit in this scenario.

Since earnings are in play, though, we need to be aware of a potentially larger move. If the stock opens below the March high and can’t reclaim it, look to see if the 50-day moving average acts as support.

Below puts the 100-day moving average in play, a level that has been solid support for months now.