Another day of gains for the major averages yesterday revealed unsettling action below the surface -- at least when it comes to one former leader. Others are looking tired, to say the least. It's a good reminder for investors not to stay married to what's worked in the past. Some big money has been made in several growth stocks since the March 2009 lows, but all good runs eventually end.
Shares of Chipotle Mexican Grill (CMG) crumbled 5.7% Wednesday to $391.78 after ITG analyst Steve West cited the possibility of slowing same-store sales growth in the second quarter. West forecast same-store sales growth of 7% to 8%, down from 12.7% growth in the first quarter. Personally, I've never heard of ITG, but I know institutional selling when I see it and it was happening in spades Tuesday in Chipotle. The stock normally trades about 600,000 shares a day.
I saw plenty of tweets Tuesday from investors wanting to buy shares of Chipotle "on sale," but that's generally a bad idea when big investors are unwinding positions. The bulls will say that fundamentals are still intact at Chipotle, with full-year profit this year expected to rise 31% from 2011 and 25% in 2013. But there's a saying that fundamentals can look the best near a stock's top, and this very well could be the case with Chipotle.
I fully understand that Chipotle is a well-run operation, but there comes a time when institutional investors are ready to move on and take profits, especially those that have big profits after a 963% move for the stock since November 2008.
After Wednesday's bearish price action, there's a chance that Chipotle could eventually pay a visit to its 40-week moving average around $370. If that level doesn't hold, its last breakout area around $350 would be in play.
Another former leader that looks vulnerable here is Intuitive Surgical (ISRG). Signs of institutional selling aren't pronounced in this name, but it's having problems around its 50-day moving average as buying demand seems to dry up. Just like buying demand seems to be drying up in Apple (AAPL), ISRG also can't get out of its own way. The company shows great bottom-line and top-line growth in recent quarters and growth prospects look good, but the stock looks tired to me. It's been trying to reclaim its 50-day moving average since June 19 but hasn't had much luck. Price action like this can often flag more weakness ahead.
Other top performers came under selling pressure Tuesday, including Ross Stores (ROST), Dollar Tree (DLTR) and Monster Beverage (MNST). Similar to CMG and ISRG, these names have also been big leaders since early 2009 and could be ready to surrender their leadership. The stories haven't fully played out yet, but a good argument can be made that the big money has already been made.
If there's any silver lining to former leaders struggling, it's that new leadership often arises. But it won't come from stocks near 52-week lows. It will come from stocks showing relative price strength near 52-week highs. It remains to be seen if the homebuilders will be able to provide continued leadership, but they're making a good case at the moment as many names remain under accumulation.