A norovirus is the latest body blow to Chipotle Mexican Grill (CMG).
CMG firmed from a January low at $400 to short of $550 this month (see the chart above). Despite this price recovery, the underlying technical condition of CMG has not improved. Volume was below average in February. Prices managed to get back above the 50-day moving average line, but not the declining 200-day average. Prices made a higher high in March but we can see a bearish divergence vs. the movement of the stochastic indicator. The slow stochastic indicator (an overbought/oversold indicator) made a lower high when CMG made a higher price high. Bearish divergences tend to shine a light on underlying weaknesses. If the price of the stock makes a higher high, shouldn't the indicator do the same thing? Sure, but when prices go higher and our indicator responds with a weaker movement, we are getting a heads up that a possible turn or reversal is coming.
In this longer-term chart of CMG, above, we can see that prices did not break down until the latter part of 2015. The On-Balance-Volume (OBV) line peaked in early 2014 telling us that investors have been selling into price weakness for some time. The slope of the 40-week moving average is pointed down, indicating that is the primary trend to respect. Last, CMG is almost fully overbought after only a $110 rebound.
This last chart is a point & figure chart of CMG, above. A point & figure chart is driven by price change and reversals. Other charts are driven by time. Today is Wednesday and we need to update our chart with today's price action. But a point & figure chart updates if we move more than $5 from the previous entree in the case of CMG. This point & figure chart shows the sharp selloff from the $535 area. Below the market, we might expect support from investors in the $470 to $460 area, looking at the chart. If CMG declines much deeper than $460, it may well decline all the way through this support to $432 or lower.