Chipotle Stock Pulls Back - Here's the Buy-the-Dip Level

Chipotle stock rallied big and now is pulling back on in-line earnings. Here's the buy-the-dip level to watch.
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Chipotle  (CMG) - Get Report stock is tipping lower in its post-earnings trading session: The shares are down about 5%.

Adjusted earnings of 40 cents a share were about in line with expectations, while second-quarter revenue of $1.36 billion slipped just 4.9% year-over-year and eked past analysts’ estimates by $20 million. 

The 9.8% decline in comparable-store sales came in ahead of estimates as well, with consensus expectations calling for an 11.9% decline.

The Newport Beach, Calif., burrito chain's sales decline was modest compared with  some restaurants, as the coronavirus pandemic continues to cause issues for companies. 

For reference, analysts expect Starbucks  (SBUX) - Get Report to see a 40% revenue decline in the current quarter and for Yum Brands  (YUM) - Get Report to see a 10.2% drop.

Further, Chipotle is operating with almost $1 billion in cash on its balance sheet and no debt. Digital sales spiked in the quarter as demand came flooding back. To me, a dip in Chipotle stock is an opportunity to buy, not to sell.

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Trading Chipotle Stock

Daily chart of Chipotle stock.

Chart courtesy of Stockcharts.com

The stock's initial rebound was very sharp from the March lows. In May, Chipotle stock broke out over $900 resistance and used that momentum to eventually clear $1,000.

Earlier this month, share broke out over $1,075, a notable level of resistance amid the rebound. This level acted as support later in the month, working in tandem with the 20-day moving average to keep the trend alive. That was a bullish development for investors to keep their eyes on.

Now, this level may be called upon once again. That is, if the 20-day moving average and uptrend support (blue line) fail to buoy Chipotle stock near $1,100.

While it would require a bit more downside, I would love for a test of that previous $1,075 support level and the 50-day moving average just below that. That would mark a 10% to 11% decline from the highs, which were hit just this week.

Below the 50-day moving average, and it’s possible we get a larger dip. On the upside, look to see if Chipotle stock recovers the 138.2% extension and $1,150 mark. 

Above puts the 52-week high in play at $1,187. A breakout could potentially launch the stock to the 161.8% extension, up at $1,264.91.