After months of waiting, Chipotle Mexican Grill (CMG) finally looks ready to rally.
In May, I mentioned that CMG didn’t look too tasty, although that had nothing to do with fast food. At the time, the shares were not in a trading pattern that suggested more upside was coming.
However, a recent 7% pullback from $420 put the shares into “buy” territory. A reliable chart pattern also suggests that a rally could soon develop.
Chipotle stock should find support at the rising channel line (blue line) and at the 200-day moving average (black line). Over the past year and a half, the channel support line has kept the shares moving higher.
Moreover, the 200-day moving average has yet to be touched - much less breached - during that time. Institutions often buy stocks or add to current open positions at the 200-day moving average. I expect institutional investors to buy CMG as the shares approach that area.
I do have one warning for any eager bulls. The 50-day moving average (orange line) appears to be resistance. In the 18-month run, CMG’s 50-day moving average rarely acted as resistance. The recent selling pressure around this area suggests that sellers could hold the stock back for the next few weeks.
Though I expressed caution in May, the shares deserve a closer look after their recent retreat. While the stock will have to fight through a few resistance zones to begin another bullish trend, buyers haven’t had a better chance to buy CMG this year.
The long-term trend remains bullish and the shares remain above two potent support areas. Unless the bears can eviscerate the rising channel support line and the 200-day moving average, investors should expect CMG shares to continue higher.
Equities mentioned in this article: CMG
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