Chipotle Is Too Spicy to Buy Right Now

Fast casual Mexican-inspired restaurant chain Chipotle Mexican Grill (CMG) is geared up to report their latest quarterly results after the close of trading Tuesday. Let's check out the charts (and maybe the menus) ahead of earnings.

In the daily bar chart of CMG, below, we can see that the shares made a low in June and a higher low in July. The shares have struggled to make a higher high and that is an issue. On an intraday basis CMG has broken its early July high but the move up has not been sustainable. Prices are poised to test or break below the rising 50-day moving average line. The slope of the 200-day line is bearish.

The On-Balance-Volume (OBV) line has only moved sideways the past three months even while prices have tried the upside -- a little disappointing. The Moving Average Convergence Divergence (MACD) oscillator has improved from May but has barely crossed the zero line. 

In the weekly Japanese candlestick chart of CMG, below, we can see upper shadows and lower shadows the past two months. Prices are below the declining 40-week moving average line.

Trading volume has dried up into July. The weekly OBV line is uninspired. The MACD oscillator is trying to cross to a cover shorts buy signal. 

In this daily Point and Figure chart of CMG, below, we can see a potential downside price target in the $1,254 area. 

In this weekly Point and Figure chart of CMG, below, we used close-only price data. Here the software projects the $979 area as a possible downside price target.  

Bottom-line strategy: I have no special knowledge of what the numbers for CMG are going to be like, but the charts and indicators suggest a decline could be on the menu going forward. Avoid the long side of CMG.

(CMG is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells CMG? Learn more now.)

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