Chipotle (CMG) is poised to make a move. Which way? (August 13, 2012)
CMG
I’m Dan Fitzpatrick at StockMarketMentor.com on Monday, August 13th. Today let’s take a quick look at Chipotle ( $CMG Chipotle Mexican Grill, Inc. ), this is one that I’ve covered from time to time in this venue and here I want to talk about identifying bottoms. Before you look and say, okay it’s obvious you want to buy right on the day, in the morning of this day is when you want to buy and when you want to sell is right up here at the top of the day at precisely 3:07:28; right? That requires a flux capacitor to do that; you can’t trade the chart, you have to trade the right edge of it, the part that’s in white right now. When you are trying to find these bottoms you have to first start at the weekly chart and here you see what happened, the 200 day or the 40 week moving average got absolutely obliterated on one big nasty week; a lot of that was a gap but we’re looking at the weekly chart here, we don’t care about gaps. What we care about is the fact that at the beginning of the week the price started there at the end it was down there and prior to that this had been under distribution, okay, we know all that. So you’re looking and saying, “Okay well I’m going to see if I can pick a bottom here,” and you’re seeing that this is what it’s looking like; so you decide that you want to identify a bottom, but before you even do that, you know that’s fine for a short term trade, but before you even do that you really need to look at this and say, “Okay, just from a buying and selling, from a supply and demand standpoint, what has really happened here?” What’s really happened is the stock ramped up huge; prior, in prior pullbacks here there’s always been some support, there’s always been some buying at a little bit lower level, here same deal, you know we can go back further and find the same thing here and here. Well this time around, I’m talking here I’m not talking about down there, but this time around there wasn’t demand to push this stock higher instead it stayed right at this critical point, right at the 200 day moving average, for a very short period of time and then got crushed. So what we know is, and this is a no, this is not a I think really strongly, no, this is a no, we know that institutions are selling this stock. Why do we know this? Because volume is only this high, if institutions are taking action; so then you say, “Well what action are they taking?” Well they’re selling and you might say, “Well how do we know that they’re selling, maybe they’re all buying?” No, if they were buying the price would be up; we know they’re selling because the price goes down. It’s very, very logical and pretty darn obvious, but like a lot of things it’s only really truly obvious after maybe it’s pointed out to you, so I’m pointing that out now. So we know institutions are selling, we also know that short sellers are selling. Why? Because short sellers tend to short when institutions are selling unless they’re taking the contrary side, in other words maybe they’re shorting into a really, really big uptrend because they believe that the market is miss-pricing something. But here that’s not the case. Why do we know that? Well because the stocks moving lower, again they’re shorting, institutions are selling; so if you are looking for a bounce here we’re still on the weekly chart, if you’re looking for a bounce here you have to understand that and say, “Okay well when I zoom into the daily chart what I’m probably not going to see is a massive opportunity to buy at $292 and sell when the stock gets back up to $365 or so.” Why? Because you’re not going to get the same demand to push the stock higher as you did before. Why do we know this? Well because if that demand was still there then don’t you think that demand would have been sufficient to stop the decline? So to make another very, very obvious statement that is a lot of times on the obvious after its pointed out to you, if there was sufficient demand to push the stock from $290 up to $365, if there was sufficient demand, you know back here to do it, and there was not sufficient demand to keep it up here; then why would you believe, why would I believe, why would we think that demand all the sudden will reappear and now we’re going to push the stock up higher? There’s no logical reason to believe that, there’s probably a lot of illogical reasons to believe that, hope comes into my mind, golly gee I need a good trade comes into mind or comes to mind, but the bottom line is there’s not enough to manage to push the stock out very far because if there was, again, then that demand would not have allowed the stock to fall that low. Now with that said let’s get to the rest of the chart. Okay we see that actually what I just said is true don’t be too impressed with me I already know what this chart looked like. But now when we see this; what are we doing here? Okay, well let’s say we bought here, maybe we bought here, I don’t know maybe you waited to buy, again you’re expecting just a small bounce, you’re not expecting this kind of move, this is all we got and now Chipotle’s ( $CMG Chipotle Mexican Grill, Inc. ) moving lower. So what’s the trade? In my view the trade is, if you bought here you really need to sell, you just sell, take your profits, if you bought up here you really need to sell, take your losses, because in my view if Chipotle ( $CMG Chipotle Mexican Grill, Inc. ) comes back down to $277.26, this low, and falls below that level you’re probably going to see additional downside because this is the chart that controls. We’ve seen this in other stocks guys, when the trounce is really big and the bounce is really weak then a lot of times you’re going to see additional downside. So Chipotle ( $CMG Chipotle Mexican Grill, Inc. ), if you have been there; you know what? They have corn tortillas, they also have a bunch of corn in their stuff, prices are going up. Now the good news is, price of beef, probably chicken as well, is going down. Why? Well because farmers are selling their livestock sooner than they normally would just to pay the bills. What’s that going to mean for next year? It’s going to mean that the price of beef and chicken, I think that’s a correlation to, I’d imagine so, are going to be going up next year, so this year the price of corn is up quite a bit, next year the price of meat is going to be up quite a bit and I doubt that corn’s going to be down lower than it was, really it will be down a little bit, but the bottom line is the very ingredients that make up Chipotle’s( $CMG Chipotle Mexican Grill, Inc. ) product are under pressure from below. We’re ultimately going to see higher prices, that cuts into their profits, so this is not, in my view, and I like Chipotle’s( $CMG Chipotle Mexican Grill, Inc. ) but I don’t like the stock right now and if I did like the stock, let me put it this way, if the stock comes down to about maybe $200 or so, then I may like it again; but perhaps not because it’s got a long way to fall. Okay that’s it; members get over to the Strategy Session. Free Chart