Chipotle Mexican Grill (CMG) has been climbing higher and higher since its low in March, but beneath the surface some technical indicators are telling me to be more cautious. While the company appears to have adapted to our new normal for dining, the stock price suggests that this has been discounted.
We had a positive outlook back on June 2 when we last reviewed the charts. Let's check out a few charts to make our case for caution.
In this Japanese candlestick chart of CMG, below, we can see that prices have almost tripled in the past four months. We have seen more red candles (bearish) this month than in previous months. Prices are above the rising 50-day moving average line and the above the rising 200-day moving average line.
The On-Balance-Volume (OBV) line has struggled to match the price gains and suggests that traders are growing weary of the long side at these price levels. The 12-day price momentum study in the lower panel shows lower highs in price momentum since April even though prices have made higher highs. This tells me that upside momentum is slowing and that is a bearish divergence when compared to the price action.
In this weekly Japanese candlestick chart of CMG, below, we can see the past three years of activity. Prices are the most extended above the rising 40-week moving average that we have seen.
The OBV line has not been able to move above the highs of 2019 and diverges against the price action making new highs. The 12-week price momentum study shows lower highs the past two months.
In this daily Point and Figure chart of CMG, below, we can see an upside price target $1284 but we can also see that there is not a lot of support from the volume by price bars (left scale) just below the market. A trade at $1,110 may start to weaken the picture.
Bottom line strategy: Traders who are long should tighten sell stops to a close below $1,090.
