How Much Damage Has Been Done To Chipotle’s Chart?

By: Wayne Duggan

Chipotle Mexican Grill, Inc (NYSE: CMG), which has been a major market leader in recent years, closed out 2015 on a low note. After climbing an incredible 1,160% from October 2008 to October 2015, the stock has fallen 38% in the last three months after an E. coli outbreak send sales plummeting 20%.

To make matters worse for Chipotle shareholders, the stock started off 2016 by inflicting some major technical damage to its chart. Here’s a look at just how bad Chipotle’s technical picture is and the key levels traders should be watching.

The bad news

There’s plenty of bad news to go around when it comes to Chipotle’s technical picture. To start, the stock experienced a death cross in late November and has been trading well below both its 50-day and 20-day simple moving averages (SMAs) ever since.

The stock cut through potential support at the $600 level like a hot knife through butter and has shown very little hope that it is near a bottom to this point.

However, the stock’s latest drop to $447 marks a breakdown below the $470-$480 level that served as support all the way back in 2014 and marks new multi-year lows for Chipotle.

A silver lining?

For Chipotle bulls, there are at least a couple of reasons to maintain optimism that the stock will make a comeback at some point soon. First, the fall to $447 means that finally, more than two years later, the stock filled the gap created in its chart in October 2013.

Technical analysts know that stocks tend to fill all gaps in their charts in time, but the red-hot Chipotle never filled its October 2013 gap in the $450-$470 range on its march to $750 until this week.


Secondly, there is precedent for a pullback this large in Chipotle’s past. As recently as 2012, Chipotle experienced a 47% retracement from $442 to $233. If the current selloff reaches the magnitude of the 2012 pullback, Chipotle might find support at around the $400 level before resuming its longer-term uptrend.


Levels to watch

In the short-term, traders need to be watching for any breakdown below $442, the stock’s previous peak back in 2012, as a sign that Chipotle could be headed for $400. If the stock breaks below $400, there appears to be very little support until below $250.

And of course, there’s not a single chart formation that can convince customers to eat at a restaurant with E. coli in the food, so Chipotle needs to put this outbreak in the rear-view mirror as soon as possible.

Disclosure: the author has no position in the stocks mentioned.

Lightspeed Financial Services Group LLC is not affiliated with these third-party market commentators/educators or service providers. Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lightspeed Financial Services Group LLC does not endorse, offer nor recommend any of the services or commentary provided by any of the market commentators/educators or service providers and any information used to execute any trading strategies are solely based on the independent analysis of the user.

You may also be interested in...

The IPOX® Week, September 20th, 2021
Read More
Understanding the Basics of Option Pricing
Read More
4 Tips for Maximizing Trading Returns
Read More
The IPOX® Week, September 13th, 2021
Read More

Try the demo

Compare Platforms
Check the background of this firm on FINRA's BrokerCheck

Our website uses cookies to improve the performance of our site, to analyze the traffic to our site, and to personalize your experience of the site. You can control cookies through your browser settings. Please find more information on the cookies used on our site in our Privacy Policy. By clicking OK, you agree to allow us to collect information through cookies.