Here is your plan for trading Chipotle Mexican Grill (CMG)? (August 30, 2012)
CMG
I’m Dan Fitzpatrick at StockMarketMentor.com on Thursday, August 30th. I want to take a quick look at Chipotle ( $CMG Chipotle Mexican Grill, Inc ). By the way members don’t blow-off my Strategy Session tonight, I go a lot into some trading principles that I promise you will make a difference in your P&L; I promise you they will make a difference, so don’t blow the Strategy Session off because it’s the last one of the week, it matters. Back to Chipotle ( $CMG Chipotle Mexican Grill, Inc ); this looks to me like it’s actually a pretty good short, the market looks like it’s heading lower, but look at this, no question this is a broken stock, no question about that. The stock closed well outside the lower Bollinger Band on three different weeks and then it started to trade sideways, but not just sideways, but sideways to down; in other words this little snap-back here between this low and this high, that is all the buyers could muster after this kind of move down and so this hit an extreme, but now this is the new equilibrium? This is it? I think there’s more downside to go here, again we’re looking at the weekly chart. I typically like to short stocks that are broken and then come up significantly to test that breakdown; let’s say that stock came down to $360 and then started to roll over, that would be my preferable time to short. You know after a stock has gone down quite a bit as a short, think about it, isn’t that kind of your mistake as a buyer? You wind up selling, taking a loss when you actually shouldn’t have been in the stock in the first place, instead you should have been buying it. If you’re shorting, when a stock has gone really, really far down, when it’s had a big decline and then you decide to short, what you’re actually doing a lot of times is going against another group of traders that are saying, “Wow! I’ve been watching this stock for quite a while hoping it could get to a certain buy-point; Wow! Today’s that buy-point, I’m going to go ahead and buy. So who are they buying from? Well, you because you’re shorting the stock, so don’t fall into that pattern; but with that said I’m looking at this like maybe this was the test and that’s all we got? The stocks at $290, and by the way you can do this by selling calls or buying puts, it’s hard to trade, for me anyway, for some people it’s not, it’s hard to trade a $290.00 stock, I can do it, but when it gets to this point it actually kind of makes more sense to be trading in options; but when you look at the daily chart what’s your deal? Well, here’s resistance, right to there, something like that, so if you’re to short this stock right now then fine; where do you define your risk? Right up above the upper Bollinger Band, you can short this stock right here, right now and you’re going to make a boatload of money as long as the stock trickles lower. Well, if the stock instead pushes up above this resistance line; then guess what? You’re wrong; you don’t need to wait for the stock to come up here, or come up here to recognize that you’re wrong, you’re just wrong; so it’s fine to go ahead and admit it, that’s called trading, and then you close your position for a small loss and you move on; or perhaps you don’t move on but instead you stay and watch the stock and you wait for a better entry, either way you’ve got to recognize that this stock is broken and we can exploit those breakdowns as long as our timing and our pricing is right. Okay, that’s it for this video; members again, please don’t blow-off tonight’s Strategy Session it’s actually as much of a tutorial as much as anything else. Free Chart