Chipotle (CMG)
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I received an email asking me how one could have avoided CMG being down $75 in the premarket. After all, Chipotle has been a leading growth name for quite a while. One needs to know CMG has been a teflon stock. No matter what they said or did, the stock would still ascend. But all great stocks have a shelf life. The companies behind the stock usually go through a certain period of time where their growth is strongest but as they get bigger growth slows. Through the move up, valuations get more expensive and more and more people pile on because they believe nothing bad could ever happen. But most stocks give good clues before they have major tops. To be sure, sometimes they don’t give clues. But in this case, there were enough clues for me to be out of the stock. First off, the stock has been living BELOW its 50 day moving average most of the time over the past 13 weeks. That in itself is not the end of the world but one needs to know, a stock cannot ascend unless it is above this important moving average. On top of this, its relative strength line has plunged. Adding to that and most importantly, look at the action of 6/27 and 6/28. What you see is simply “big money crowd” liquidation on those two days…and frankly, I never argue with that type of action. The recent bounce only made the chart give a look of a “wide and loose” pattern…which typically fail.
So I think the stock gave you clues…not necessarily that the stock would be down $75 in the premarket today….but most definitely, in recent action. Combine that with the fact the stock had already had a big run…and you get the potential of a big drop if the company says anything negative. If you own the stock right now, my rule would give it a few percent underneath the open and just get out. If you owned, hopefully, the gap is overdone and gets bought up.
Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.