We now know that Bill Ackman has taken a significant stake in Chipotle Mexican Grill (CMG) . Bill Ackman has much deeper pockets than I do and has shown he has the ability and foresight at times to buy in adversity.
I, on the other hand, like to buy strength. I want the chart to support the fundamental story. I want to see a pattern of higher lows and higher highs, along with expanding volume. Ackman can defend his position whenever and where he wants. I will give you mine now.
In this daily chart of CMG, above, we can see a mixed technical picture. Prices have been in a downtrend the past 12 months. CMG has recently rallied above the short-term 50-day moving average line and this line has recently turned up. CMG is still below the declining 200-day moving average line.
The pattern of volume has not been expanding as prices made rallies until late August -- this is when Mr. Ackman may have stepped up his purchases. The On-Balance-Volume (OBV) line has been weak and flat for much of the past year. The OBV line is a coincident-to-leading indicator and is not showing much leadership at this point in time.
Momentum is giving us a positive clue, with equal lows in price in June and August while momentum made a higher low -- this too may be a clue to Ackman's buying. As he bought, the downside momentum slowed.
In this three-year weekly chart of CMG, above, we can see that the downtrend is still intact. Prices are below the declining 40-week moving average line. The OBV line is still in a downtrend on this timeframe. The Moving Average Convergence Divergence (MACD) oscillator is well below the zero line, so a new go long signal is off in the future, depending on the price action.
Ackman may be right or he may be wrong. The marketplace will tell us soon enough. I want to see a higher high or a weekly close above $450 to tell me that the bull is getting the upper hand.