Chipotle Mexican Grill (CMG) reported some pretty solid earnings. The stock is down. Here’s your trade. (October 20, 2014)
I want to look at CMG, Chipotle ( NYSE:CMG ). They announced earnings after the bell and they were actually pretty good. But if you remember, last quarter earnings were outstanding and the stock never even wanted to fill the gap and just kept going, even on this pullback; it gave you the idea for half a day that it might be filling the gap. Now, by the gap, by the gap down, the stock is filling about half the gap. So what are you going to do?
Here’s the thing, the PE is still really, really high, it’s got like 58, 59 PE right now, and that’s a high PE for a restaurant, like a really high PE for a restaurant. So what I would suggest is this, look at the weekly chart, know that the stock is really jiggy, but look at the slope of the 200-day or 40-week moving average. If you look at that you’ll see that it’s up quite high. If you look at the daily chart you’ll see there are few buying opportunities for this.
Now if you think Chipotle ( NYSE:CMG ) is peaking then this is the time to be selling. I don’t think that it is, but I’m not the ultimate arbiter of restaurants, that’s just not my deal. If only, then I would probably shoot myself, because nothing sounds more boring than that. But, the 200-day moving average works; if you can just use that as a reference for this trend what you want to do is, you want to take advantage of this pullback and buy this stock.
The closer you can buy it to the 200-day moving average the less money you’re going to risk, because you’re going to want to ultimately keep a trailing stop down along the 200-day moving average. So if that’s going to be your tactic then buying the stock up here you sustain that kind of risk. If on the other hand you buy the stock down here then you sustain that kind of risk. You get the point; this is not hard.
It just requires some discipline. So with that said I think for a long-term position you can buy this stock on the dip tomorrow, on this gap for a longer-term position. Short-term, you’re going to have to wait and see how this stock trades. I couldn’t tell you, right here right now, if this is going to drop down and run. It seems a little tenuous to do that, simply because there’s so much resistance right up overhead from folks that have recently bought stock, like up until today, who will want their money back if the stock rallies.
But long-term I think you’re still really good to go on Chipotle ( NYSE:CMG ). When I say long-term I don’t want to hear from you in November or December unless it’s November or December 2015. When I say long-term I’m literally talking long-term, like long-term, and you’re good.
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