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Chipotle Needs a Fresh Earnings Menu to Recover

The burrito restaurant chain Chipotle Mexican Grill, Inc. (CMG) has struggled from tainted food illnesses since the stock set its all-time intraday high of $758.61 in August 2015. Periodic issues pushed the stock to its 52-week low of $263.00 on Nov. 13, 2017. This 65% bear market slump could be tough to shallow if earnings disappoint when the company reports results after the close today, Feb. 6.

The stock closed Monday at $300.30, up 3.9% year to date and up 14.2% since setting its 52-week low on Nov. 13. The stock is in bear market territory at 39.8% below its 52-week high of $499.00 set on May 16, 2017. Analysts expect Chipotle to post earnings per share of $1.32 to $1.34 in its upcoming report. The fast-casual Mexican Grill needs a strong quarter to get back on consumers’ menus. UBS expects the stock to stay behind the woodshed, downgrading Chipotle shares last week to a sell rating and forecasting weak same-store sales moving forward. (See also: Chipotle: Rise and Fall of a Wall Street Darling.)

The daily chart for Chipotle

Daily technical chart showing the performance of Chipotle Mexican Grill, Inc. (CMG) stockCourtesy of MetaStock Xenith

The daily chart shows that Chipotle has been below a “death cross” since Aug. 3, 2017, when the stock closed at $345.36. A “death cross” occurs when the 50-day simple moving average moves below the 200-day simple moving average and indicates that lower prices lie ahead. The horizontal lines show that Chipotle stock is below its weekly pivot of $314.08. The key level to watch on a negative earnings reaction is my quarterly value level of $280.61. The key level to watch on a positive reaction is my semiannual risky level of $386.35.

The weekly chart for Chipotle

Weekly technical chart showing the performance of Chipotle Mexican Grill, Inc. (CMG) stockCourtesy of MetaStock Xenith

The weekly chart for Chipotle is negative, with the stock below its five-week modified moving average of $313.17. The stock is well below its 200-week simple moving average at $507.98, which is also the “reversion to the mean,” last tested during the week of March 18, 2016, when the average was $510.76. The 12 x 3 x 3 weekly slow stochastic reading is projected to end the week at 70.66, down from 76.26 on Feb. 2.

Given these charts and analysis, my strategy is to buy Chipotle shares on weakness to my quarterly value level of $280.61 and to reduce holdings on strength to my semiannual risky level of $386.35. (For more, check out: Top 4 Shareholders of Chipotle Mexican Grill.)

 

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Cobi Jones writes about the blockchain community in the US. He is an entrepreneur and private investor in blockchain projects