- Japan
- Market Indicator
- Price Momentum Indicators
- Richard Russell
- Silver
- Speed Resistance Lines
- U.S. Dividend Watch List
Category Archives: CMG
Chipotle Mexican Grill
Posted in CMG, Downside Targets, PMI, Price Momentum, Speed Resistance Lines, SRL
Tagged members
CMG Conservative Support Broken, Is $146 Next?
Today Chipotle Mexican Grill (CMG) broke below our conservative downside target support level. Our downside target for Chipotle is based on Edson Gould’s Speed Resistance Line [SRL] and was initially constructed in our October 25, 2011 article (found here). In that article, we arrived at a conservative downside target of $200.59. However, as the price of the stock roses it became necessary to revise the downside target. A revision of the conservative and extreme downside targets was done on October 6, 2012 (found here).
The chart below graphically represents what we believe is likely to transpire in the short-term:
It appears that CMG will decline to $233.23 with a high level of certainty and potentially to the $200 support level as was initially indicated in our very first SRL analysis done on October 25, 2011. The only remaining question is whether or not CMG will fall to our extreme downside targets as NFLX and GMCR did when we constructed SRLs for those stocks.
Our extreme downside target of $146 is based on our October 6, 2012 CMG revised target as seen in the chart below:
Edson Gould’s SRL: Chipotle Mexican Grill Downside Target Update
In a series of articles examining Edson Gould’s Speed Resistance Lines (SRL), we put some big name stocks to the test. The test was to see if Gould’s SRL had any reasonable predictive ability to determine the downside targets for the stocks in question. The results have been astounding and are well worth your careful consideration.
First, we will review the SRLs for Netflix (NFLX) and Green Mountain Coffee Roasters (GMCR) and the outcome of the analysis related to Gould’s indicator. Next, we will review the updated Chipotle Mexican Grill (CMG) downside target.
The first stock that we applied the SRLs to was Netflix (NFLX) on December 3, 2010. At that time, NFLX was trading at $205.90. When the stock rose to the eventual peak of $298.73, we thought that maybe the SRL was a waste of effort.
However, almost one year to the day after we ran the SRL on Netflix, the stock had broke through our conservative downside target of $117.76. Even more amazing, NFLX later declined below the extreme downside target that we set at $68.63. Today Netflix trades at $66.56. Because we’re not short-sellers, we did not take any position on the decline of the stock. However, we were able to buy the stock at $62 and sell the stock at $100 in the subsequent rebound from the initial low.
The next stock that we applied the SRL to was Green Mountain Coffee Roasters (GMCR) in our October 25, 2011 review of Edson Gould’s formula. At the time, GMCR was trading at $64.75 after declining –42% from the peak in the stock price on September 19, 2011. There were some who said that the stock was a bargain and should be bought. However, Gould’s SRL indicated that at minimum, GMCR was to decline to $59.93 and possibly decline to the $37.21 level.
In a May 2, 2012 revision of Gould’s SRL for Green Mountain Coffee Roasters (GMCR), when the stock was trading at $28.50, we suggested that the stock could trade down to $22.53 with and additional downside target of $8.30. Today GMCR trades at $22.13 (see chart above).
In the same October 25, 2011 review of Green Mountain Coffee Roasters, we covered Chipotle Mexican Grill (CMG). At that time, Gould’s indicator suggested that CMG had a conservative downside target of $200.59 and an extreme downside target of $114.16. As we’ve indicated in the past, SRLs are based based on the highest price the stock attains. In this case, CMG rose as much as +45.70% since our October 25, 2011 article. Below is the revised SRL for CMG.
Based on the high of $440.40, Chipotle Mexican Grill has a conservative downside target of $233.23 and an extreme downside target of $146.80. We’re cautious about anyone who suggests that CMG is a “good buy” or “undervalued” at the current price. Already, we’re within striking distance of the $233.23 conservative downside target as CMG trades at $280.93 after hedge fund manager David Einhorn recently recommended selling the stock short (article found here). If past use of SRL is any indication, when CMG declines below the upward trending conservative downside line, you can be assured that the stock will hit $233.
Again, our purpose of using SRLs to determine the downside risk of a stock that we’d like to buy but don’t want to chase. We’re willing to wait for the eventual decline or admit that we missed the boat on a great investment opportunity. Again, we don’t sell stocks short because we’re interested in acquiring great companies at the best price possible.
Disclaimer: This piece is a continuation of the examination of Edson Gould's speed resistance line as explained in prior articles. This is not an endorsement to sell short at the current levels nor buy these stocks once falling below the extreme downside targets since the stocks have been randomly selected, at best.
Posted in CMG, downside, Edson Gould, GMCR, NFLX, speed resistance line
Tagged members
Edson Gould’s Speed Resistance Lines: Chipotle & Green Mountain
As described in our article on speed resistance lines dated September 22, 2011 (found here), Netflix (NFLX) has fallen below the level of $99.58 in a quick crash. At the time that we first ran the speed resistance lines on NFLX on December 3, 2010 we calculated a conservative range of $117 and an extreme range of $66.
Although we thought that the stock would be worth considering below the indicated levels, at the time, we had to concede that, “the difficulty may be that the sentiment that pushed the stock price to $298.73 would likely be just the opposite to push the price down.” Therefore, we’re not buyers of NFLX at these levels. However, we wondered what Edson Gould’s speed resistance lines would say about two other stocks that have had tremendous increases recently.
The first stock is Chipotle Mexican Grill (CMG) which has had a tremendous run-up in the last several years. In the chart below we can seen that Chipotle has recently peak around the $342.49 level. Based on Gould’s work, the near term conservative downside target is $200.59 while the extreme downside target is $114.16. If the stock price increases above $342.49 then so too will the downside targets.
The next company that we’re interested in seeing the outcome on is Green Mountain Coffee Roasters (GMCR). It is challenging to believe that Green Mountain Coffee Roasters is going to increase above the prior peak in the near term. However, there appears to be a tremendous amount of downside risk for this company despite the decline that has already taken place. The conservative downside target is $59.93 while the extreme downside target is $37.21. Green Mountain Coffee Roasters (GMCR) appears to have the worst technicals since a move below the $37.21 price could bring the stock down to the old support level of $3.
We believe that it is worth examining whether or not these targets are accomplished. Chipotle Mexican Grill (CMG) actually appears to have some upside momentum in it still. However, we believe that the downside targets are reasonable estimates of where the stocks could go before initiating new research on whether these companies have viable business models.
Disclaimer: This piece is a continuation of the examination of Edson Gould's speed resistance line as explained in prior articles. This is not an endorsement to sell short at the current levels nor buy these stocks once falling below the extreme downside targets since the stocks have been randomly selected, at best.
Those who understand interest earn it, those who don't pay it.