Chipotle Mexican Grill (CMG) passed the test. Time to place an order. (July 28, 2016)
CMG
Chipotle ( NYSE:CMG ). They had a breakout here a few days ago. A pretty nice move, right? Earnings are already behind us, so we don’t care about that. We’re not really seeing any E. coli outbreaks, so we don’t really care about that. Yesterday’s E. coli is not our problem, it’s already baked into the stock. Over the last three days, up until today, the last three days we saw this pullback. But the stock brokeout above the 50-day moving average. One of the things that a good trader will look for are these key events like this: A key event where the stock breaks out on massive volume. You look at that and say, “Alright, I may buy this because I think the stock could continue to run higher. I’m looking at this low. I’m looking at a lower low, and a squeeze, and now we’re getting, just kind of relative to this trading range here, we’re getting a breakout, a higher high. But I wonder if this breakout is going to hold? Oh, okay, I’m not going to buy yet because I’m not seeing any continuation. I’m definitely not going to buy here.” Only a knucklehead would buy on that day. If that’s you, sorry, I didn’t mean you.
No, you wait, “Oh crap! I’m glad I didn’t buy yesterday with the knuckleheads.” What you are waiting for is, you’re waiting to see whether this test, remember, so the stock breaks out but there is no continuation the second day. Not pulling the trigger, I’m waiting. So then the stock is pulling back and you’re waiting, and you’re waiting, and you’re waiting. This sure looks like it’s going to be a bottom. It looks like a low. It looks like this should continue to move higher. But where are you going to buy this at? Well there’s no reason to make a decision because the stock has not YET tested the 50-day moving average, which was where the resistance was, where the top was for a while. For quite a while. So we’re waiting to see how this stock reacts around the 50-day moving average. I’ll say it’s around 418.00, 420.00, something like that. So I’m waiting and I’m waiting. And I want to see if buyers materialize and I don’t want to be the first one. You don’t want to be the first one out of your foxhole. That worked great for Audie Murphy, not so much for others. You want to be the second or the third guy. So we’re waiting and we’re waiting. Oh, now we have what could be a solid entry.
First of all, we get a lower low. So we’ve got this intraday low. The following day, a lower intraday low and a lower intraday high. The following one still, lower intraday low, lower intraday high. And then even today, a lower low, a lower high. The only difference is, this time the close was higher than the open, which reflects aggressive buying, more so than the last three days. So NOW you can buy this stock. NOW is your entry. You’ve got a stop right down there. Shoot, you could even put the stop just a little bit below today’s intraday low of 425.00. You keep a VERY tight stop on this, because your reason for buying this is, you think it’s done going down; breakout, pullback, you think now the stock is going to do this. So if instead it does this, well you don’t want to be in there wondering if it’s going to hold at 390.00. You take a dollar or two loss. You stand back, let the stock settle out and then decide whether you want to buy it on the next setup. But here’s your setup for right now, I think this works.
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