Chipotle in a Stall

In 51 trading days, starting on December 6, 2016 and ending on February 21, 2017, Chipotle (CMG) went from $366.37 to $432.36. That's an 18% increase in relatively short order.

Using multiple moving averages on both price and volume to indicate changes in momentum as they occur, there's good evidence that volume has been exhausted on this up-move and the stock has a good chance of falling back below $400 per share.

Using eight moving averages that gives 28 relationships between each pairing of the averages, the price momentum was very weak on December 6th with only 4 of the relationships showing a shorter moving average exceeding a longer moving average. That 4 of 28 increased to 21 of 28 by February 21st, and since then has fallen to 20 of 28 on this first week of March. The price has subsequently fallen from $432.36 to $416.09. At the same time the volume momentum was very strong in December showing the selloff was happening on strong volume with 20 of 28 shorter moving averages exceeding their longer term pairings. However as the price increased into February the volume relationships fell to 8 of 28. Into the first week of March there are now only 5 positive pairings of the volume moving averages. 

This indicates that buying enthusiasm has run its course and the price has started showing weakness amidst a very strong market rally; however the relative weakness is just an anecdotal observation.

Short positions that could be constructed at this point range from shorting the stock directly, or selling an option pair strangle with a 420-Call and a 390-Put that will net $16.55. The near-the-money call would contribute $12 of the $16.55, and gives a generous break-even to the downside of $375.