Hungry? Check out the bottom of this burrito bowl in Chipotle Mexican Grill (CMG) (October 21, 2015)
With Chipotle ( NYSE:CMG ) here, I want to show you this: this is a buy point. The stock had been trading sideways since last earnings, right? So then they report earnings, nobody was particularly happy with it except those that were short. The stock falls down to 650.00 where it’s basically stayed. Up a bit, and that’s fine, it’s basically flat. So here’s the deal, this stock has completely filled this gap. It’s hit a lower low, it is finally back below the 200-day moving average. Now this is one noisy chart, I mean this thing is all over the place.
So here’s my suggestion for you, it’s actually pretty easy. First we’re going to manage some risk here, if I can get the red box up, so far all we’ve got is green, here we go. So the low of the day is 646.80, so lets look at 645.00ish. You can literally put a stop right around 645.00 now; where the stock closed right in here, so that’s 15 points. But 15 points on a $660.00 stock is actually not that bad a risk. So what you’re doing is you’re saying, “Wow! I want to get me some burrito bowls here.”
So you come in and buy this thing on this kind of pullback, and then expect the stock to start reverting to the mean, that is just inside these Bollinger Bands. And that means that the Bollinger Bands are either going to have to extend down in order to catch up with the price if it continues to move down. Or the price is going to have to move up and a little bit in, which is the weird thing about time, it goes from left to right, a little bit in. So I think this will be a winning trade for you. As far as what it’s going to do long-term, we don’t know. But every good investment, frankly, starts as a good entry on the trade.
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