Shares of Chipotle (NYSE:) are still higher by about 75% for 2019, after being up as much as 100% just a few short weeks ago. The recent retracement, however, was a much needed reprieve. The stock now looks ready to make another rally attempt. Additionally, the options market currently offers affordable ways to buy CMG stock for a trade.
One of the biggest problems for most traders and investors, both professional and private, is to separate analysis time frames. How often have you put on a trade and then stopped out, only to ultimately see the stock move in the direction you thought it would?
This is a classic case of being right on direction but wrong in timing. It is also why the majority of short term-oriented traders fail or don’t make as much money as those with more expanded time frames. To overcome this, it is vital to look at charts in multiple time frames. When the charts in different time frames are in agreement with each other, a higher probability of being right both directionally and in timing can be assigned.
CMG Stock Charts
Getting right to it, let’s look at the multi-year chart of CMG stock, which stretches back all the way to 2012. Here we see that the sharp 2019 rally earlier this year pushed it toward and ultimately above and through its 2015 highs. As is usually the case, however, when a major ‘breakout’ (for the lack of a better term) like this occurs, it will tend to re-test said breakout point before potentially heading higher again.
The stock’s 15% pullback over the past few weeks thus far has done just that. All else being equal, this now provides traders with better entry points to try the stock from the long side for a trade.
On the daily chart we see that the recent pullback had CMG stock not only test the horizontal support area from the above chart, but also its red 200-day simple moving average. From a momentum perspective, the stock’s daily MACD oscillator is notably oversold, and my proprietary B2 Reversal indicator printed a bullish signal on Nov. 12.
While I think the stock can move higher from here toward $800 as a first upside target, what’s even better is knowing the well-defined stop loss at the recent lows around $727.
For options traders CMG stock currently offers fairly cheap implied volatility, which is to say that a January $750-$800 bull call spread is a cost-effective way to express a bullish view in CMG stock, for a trade.
The highest probability trade, however, that sets up well for this position in Chipotle Mexican Grill stock is to sell an out-of-the-money put spread (options credit spread) in a very specific way. I am hosting a special webinar Wednesday, Nov. 13 to go over this setup in detail. .
Special free webinar: How to generate stock market income with options credit spreads like a pro. Register
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.