The weekly chart of Chipotle Mexican Grill (CMG) is starting to breakdown in a similar way that CROX broke down but the institutional numbers don’t support the down side as strongly as it did with CROX. The number of shares sold exceeded the number of shares bought by 46% when I highlighted CROX as a potential breakdown stock back in September in the post titled “Will CROX get Eaten?”
“Recent churning action below $60 per share shows that buyers are no longer in control of the stock. However, sellers haven’t completely gained control either. It is a tug-of-war between supply and demand as we await the ultimate direction of the next trend for the heavily covered Crocs Inc. (CROX).”
The difference here is that CMG has only recorded a 19% increase in shares sold versus shares bought which is not excessive. However, the stock has violated the 200-d moving average for the first time since the long up-trend started. We can also see the first violation of the relative strength versus the S&P 500 suggesting that the stock is no longer a leader and may fall victim to increased institutional selling.
Yes, the current fundamentals look strong but CMG posted a fourth-quarter profit that missed Wall Street’s expectations and said 2008 would remain challenging, raising some red flags in my opinion. They could be playing it cautious or they could be signaling the beginning of the end of this particular run.
The stock is 32% off of its all-time high and has been falling on increasing volume as it violated the long term moving average. I am not shorting at this spot but I will jump on puts about six months out on the first failed attempt to make new highs above the 200-d m.a.
Listen to what the Institutional Buyers are Saying (with their actions):
Total Held by Institutions: 386
Money Market: 182
Mutual Fund: 200
Other: 4
New Positions: 107
Positions Sold: 58
Shares Held: 29.28 mil
Shares Held Previous Period: 30.12 mil
Shares Bought: 4.31 mil
Shares Sold: 5.16 mil
Value of Shares Bought: $554.8 mil
Value of Shares Sold: $663.9 mi
- The number of shares held has decreased by 3%
- The number of shares sold exceeded the number of shares bought by 19%
- The value of shares sold was $109 million more than bought
It took a couple of months but CROX did get Swallowed and it all started with the small and subtle red flags that we are starting to see with CMG.
“I wrote a post titled Will CROX get Eaten? on September 20, 2007 and strongly noted the declining institutional support (see numbers below). Someone was jumping out of the stock and we now know why!”
“Stocks only churn when buyers and sellers are struggling to take control. More often than not, stocks churn because BIG institutions are selling shares to the small retail buyer (the sucker). Institutional numbers and charts that back them up don’t lie! The big boys can’t hide if you know how to read them.”
Chris,
I value your posts because you must be a good guy due to your name. Can you clear up CROX filling in it’s breakout gap that occured in May. I’m reading technical analysis books and have not seen that scenario. Are you saying that gap was filled on the way down and the trend is now up?
In my opinion, CMG had a head and shoulders pattern forming going into earnings.
Hi Chris, a technical question, In the CMG graph, from mid-november 06 to the end of april 07 is that a cup with a handle formation?
thanks
Hey Chris,
Regarding shorting, you said:
“I will jump on puts about six months out on the first failed attempt to make new highs above the 200-d m.a.”
I have two questions:
1) Do you prefer using the 200-day MA to initiate short positions or the 50-day MA? Do you find the probability of future lower prices is higher when the stock shows bearish price/volume action at the 50-day MA more so than the 200-day MA?
2) When you’re looking at puts to purchase, do you look at whether the premiums are expensive relative to their historical norm? Do you find that the put premiums become more expensive when the stock is experiencing resistance at the 200-day MA?
Thanks!
Hi, do you mind sharing about how to get the information of institutional buyers? I remember seeing you mention it somewhere but couldn’t find it. Thanks a lot.
Rafael,
You could say that when looking at the chart, very much so! I never owned CMG on the upside so I missed the breakout.
Eric,
I prefer the 200-d m.a. unless the 50-d is below the 200-d. I find the best setups to come several months after an all-time high when the stock has already crossed below the 50-d m.a. and is now struggling to hold the longer term 200-d m.a.
As far as premiums, I don’t have enough trades under my belt to say for sure what works. Expensive premiums are dangerous in my opinion regardless of the situation.
Landola,
Two places to gather institutional information:
Daily Graphs or Vickers Research