Thinking about buying Chipotle Mexican Grill (CMG)? Here’s why you shouldn’t do that. (August 08, 2017)
CMG
We are looking at Chipotle ( NYSE:CMG ). First of all I had a really great burrito bowl yesterday, steak, low cal; their ice machine was down so that was a little problem, and the stock REALLY looks like it is down. Here is the deal: How low can this thing go? I get asked about this, from members or just people that I meet, at least once a week. At LEAST once a week, though nobody recognized me in Chipotle ( NYSE:CMG ) so nobody asked me about it yesterday. They ask, “How low can this stock go? Shouldn’t I buy it, it is already down so much?” Yadda, yadda, yadda.
So lets look at this for a minute. This is a really ugly chart, unless you happened to short right at the top. Lets see how low this can go. First of all here is a spoiler alert, there is no buying in this, except to cover your short at some point at a lower level. There is just no buying to be done. They don’t report earnings for a while so that is not an issue. This can go a LOT lower than it is right now. Lets just look at the weekly chart and then I will come back and show you a daily pattern. This is a massive topping pattern. If you look at this from the bottom here, up to the top here, that is about 143 points, but lets go anywhere from 125 to 150, something like that. In fact we will be a little more conservative and go where we really kind of have support right here, up to this level here. So we have got about 25 points, 33 percent. We come down here, the stock breaks below it. How much lower can this thing go? So we go from about this level here, and we are going to drag this down the same percent, about 125 points, about 33 percent.
Lets see where we go. Watch it on the left, 125. Here is 125, there is 34 percent; 240, I am not doing that, I am not looking at this level back here and saying, “Oh! It is going to come back and test this.” Maybe. Here is what I know: I know that this has to make one stop on the way to the level that I think it can hit, which is 250, because that is an even number. We see this massive institutional selling here. You are not going to see other institutions say, “Oh great! They are all done over at Fidelity. I am in Vanguard I will go ahead and buy this stuff.” No. This is a stock that is still under distribution. If we come back and look at the daily chart we will see a bearish wedge pattern here. So you get a big decline here. Then we get higher lows and lower highs, and now we are just kind of pouring out the end of the garden hose.
Here is my point: If you happen to buy Chipotle ( NYSE:CMG ) on this 340.00, assuming this was going to be the low, my strong suggestion is just undue that, get out of the stock. Short it if you want to, that is fine too. I think a short is actually going to work here. I think it will work just fine, but at least don’t be long. Now, I don’t know who I am talking to, but it might be you that just bought this stock because you think you are getting in on a good deal. Bill Ackman is in it, and we all know what a great stock picker Bill Ackman is and so you want to play along. I am telling you, wait for the stock to fall to at least 300.00 and then look and say, “Wow! That was a nice rest. I think maybe I will buy it when it gets to 250.00.” Seriously, that is your trade on Chipotle ( NYSE:CMG ).
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