Chipotle Mexican Grill (CMG) Presenting Interesting Trading Opportunity

01/25/2010 11:29 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Chipotle Mexican Grill Inc (NYSE: CMG) is evolving into a very interesting situation.  The current sentiment profile still shows low expectations. Analysts remain on the sidelines while short interest is high. Both of these are potentially encouraging signs, but there needs to be a catalyst to spur the skeptics into capitulating.

Analysts were on the sidelines while short interest was high. The only piece of the puzzle that had to come together was stronger price action. It looks like that is now changing too.

Before we get to the chart, let's review the sentiment. One sign of skepticism comes from the Street as only ten of 24 analysts (42%) rank the stock with a “Buy” rating. This is an encouraging contrarian situation as upgrades could drive buying demand.

The short interest graph is especially worth noting as it shows a drop. However, according to data collected by our QA department, 23% of the stock's float is still sold short. In other words, this appears to be a situation where short sellers have begun to cover, but there is still a sizable amount of potential buying demand.

A look to the weekly chart below shows why skeptics may be rethinking their positions. Chipotle Mexican Grill is breaking out. After spending a number of months consolidating, it looks like the upward trend is poised to resume.

Click to Enlarge

Earnings should be out in early-to-mid February, so keep an eye out for that release.

By Nick Perry of Schaeffer’s Trading Floor Blog

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