Wednesday, October 6, 2010

CMG Watch

Chipotle Mexican Grill Inc. (CMG) gave back nearly all of Tuesday's gains, and the volatile fast stochastic moved into bear phase. So what to do now? Declare a whipsaw and exit? Put on a happy face?
CMG $174.34

The giveback happed after an analyst at Deutsche Bank downgraded the stock to "hold", which generally is the kiss of death. Oddly, the analyst simultaneously increased the target price by $14 to $184.

So it's a slightly overdrawn market reaction, to say the least.

Earnings will be released on Oct. 21 after the close. The runup to earnings are always prone to analyst surprises. This is the reality of life in the markets.

I made the bullish case for CMG in an analysis posted on Tuesday, and closed by saying: "Today was an entry point for me, and Wednesday might produce a pullback that would mean and even better entry."

I consider today's move to be that pullback and not the start of a serious decline, for these reasons:

1) The price has stayed above Tuesday's low.

2) The volume was about the same as Tuesday's: Neither a spike nor a sharp drop in shares traded.

3) The slower indicators -- parabolic sar, Person's Proprietary Signal (pps), 20-day moving average -- all continue in bull phase.

What would change my mind?

A break below Tuesday's low of $174.37 would make me very nervous. A cross below the 20-day moving average, or bear signals from the parabolic sar or the pps would send me scrambling for the exits.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.


  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic

About the glance: The colors indicate the state of each signal.

  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways.
  • sto: green for bull, red for bear.
  • sto zone: green for overbought (80+), red for oversold (20-), yellow for neutral zone
  • psar, pps, macd: green for bull mode, red for bear.
  • macd trend: green for rising, yellow for sideways, red for falling.
  • neutral.
  • ma20, ma200: green for above the average by more than 1%, red for below the average by more than 1%, yellow for within 1% either side of the average.

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