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Greg Harmon of Dragonfly Capital outlines several ways to trade the popular restaurant chain, depending on your bias.

Chipotle Mexican Grill (CMG) is stalling as it breaks above the late 2011 consolidation zone, marked by the blue box. It may be building a bull flag or a bearish pennant, but it is still too soon to tell.

The Relative Strength Index (RSI) is bullish, but pulling back from a short stint as technically overbought, with a Moving Average Convergence Divergence indicator (MACD) that is positive but starting to fade.

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The Price by Volume shows a real lack of previous price history to prevent a run higher—a positive—but the Tweezers Top at 343.90 signals a reversal lower. Short interest over 10% is also bullish, and with a three-box reversal Point and Figure (PnF) of 456, the long-term view is higher.

But in the shorter run, you have to look both ways. Resistance higher is found at 380 and 392, followed by the gap fill to 396.98. The Measured Move out of a flag higher over 344 would take it to 399. Support lower on a break of 330 is found at 319 and 303, then 290.

Bullish Trades:

  1. Buy the stock on a move over 344 with a stop at 335.

  2. 2. Buy the October 335 Calls (offered at 16.10 recently) on the same trigger.

  3. 3. Buy the October 340/375 Call Spreads (10.60) on the same trigger.

  4. 4. Sell the October 300 Put (3.70) on the same trigger.

  5. 5. Buy the October 340/375 Call Spreads selling the October 300 Put (6.90) on the same trigger.

Bearish Trades:

  1. Sell the stock short on a break of 330.

  2. 2. Buy the October 330 Put (12.40) on the same trigger.

  3. 3. Buy the October 330/300 Put Spread (8.70) on the same trigger.

  4. 4. Buy the October 325/300/290 Broken Put Butterfly (5.65), buying the 325 and 290 Puts and selling 2 of the 300 Puts, on the same trigger.

  5. 5. Sell the October 380/400 Call Spread (1.30) on the same trigger

Greg Harmon can be found at Dragonfly Capital.

Tickers Mentioned: CMG

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