Here is your trading plan for taking bite-sized chunks out of Chipotle Mexican Grill (CMG) (February 25, 2016)
CMG
In this video I want to look at Chipotle ( NYSE:CMG ). A while ago, I apologize, I can’t remember if I mentioned it in this Free Chart Video or if it was behind the green door, we’ll say, that what I wanted to do was wait for the stock to come down to test $500.00 I’m pretty sure. Because after this kind of move it’s just not going to keep going up forever. You’ve got to wait to get some kind of entry. You know with the whole E.coli thing it was a big problem for Chipotle ( NYSE:CMG ). That has apparently gone away. On a weekly chart, the chart still looks a little bit scary because it’s kind of a wedge pattern. I’ll be honest, I’m kind of biased because I like their food. But you got this kind of a breakout, this is a critical breakout, but it’s on lower than average volume if you’re counting all of these massive volume spikes because this is a 50-day moving average here. But you can see, relative to this volume that happened before the big fall, this is actually some pretty good volume and all the emotion has kind of wrung out of the stock.
So what I’m suggesting here is, have like a two-part entry here. The stock did test 500.00 today, try to get the stock there, but only buy a little bit, because we could see this thing come all the way back to 480.00. If it breaks through 500.00, the 50-day moving average is 400.97, so we’ll call it an even 500.00. If the stock falls BELOW the 50-day moving average the next logical support level would be 480.00. So that is another 4 or 5 percent below. Not a big pullback in order to get more stock, but I’ll take any price improvement that I can. So your whole reason for buying this stock is that ultimately you think this is going to move higher, revert more to the mean. That is why that’s the ONLY reason why you are buying this stock. If you don’t agree with that, do not take this trade. So you take some right around 500.00ish, hope that it falls to 480.00, and you can take some more. On the other hand, if you grab some at 500.00ish and the stock starts trading back above 530.00, that’s when you add more.
So you’re happy that you got some down here, you’ll get move up there. If the stock pulls back you’re happy that you ONLY got some here and then you’ll get the rest down there. So what you’re really doing is, you’re trading on an opinion that ultimately the stock is going to go higher, but your plan is that you’ve got one plan to account for the stock actually moving up. You’ve got another plan to account for the stock actually moving down. And by the way, if the stock does move down after you take this first one, don’t just buy the stock at 480.00, wait for evidence that the stock IS in fact finding support. I don’t like buying falling knives, I know some guys do, Cramer thinks that’s the best thing, buy them as they fall and they get cheaper. I’ve tried that a long, long, long time ago and I just kind of get sick, it just doesn’t work for me, I don’t have the disposition. So anyway, if you do, great. Otherwise, wait for confirmation that the stock is springing off of a level and that’s when you go in. You don’t get the bottom but you get to piggyback on the bottom feeders, and that’s always fun.
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