Shares Dropped More Than 5% on Monday
Key Takeaways
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Chipotle Mexican Grill shares dropped more than 5% on Monday as excitement over the fast-casual chain’s recent 50-for-1 stock split wanes.
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Chipotle shares have confirmed a bull trap, a chart pattern that “traps” investors who initiated long positions on the breakout signal and subsequently generates losses as the price reverses.
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The Chipotle share price may find support at key chart levels including $56, $50, $47, and $43.
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When monitoring the support levels outlined above, investors should seek confirmation from other technical indicators that provide additional clues the current retracement in the stock might be coming to an end.
Shares in fast casual chain Chipotle Mexican Grill (CMG) dropped more than 5% on Monday, giving back a further portion of the impressive gains the stock registered after the burrito maker announced a 50-for-1 stock split in March, as investors continue to take profits off the table.
Below, we take a closer look at the technicals on Chipotle’s chart while also identifying important levels to watch out for amid further share price weakness.
Chipotle Stock Confirms Bull Trap
Chipotle shares broke out from a six-week period of consolidation in mid-June to reach a new record high but have promptly reversed lower since that time to confirm a bull trap, a chart pattern that “traps” investors who initiated long positions on the breakout signal and subsequently generates losses as the price reverses.
In another sign of weakening upside momentum, technical divergence appeared on the chart last month when the stock climbed to a new high, but the relative strength index (RSI) made a comparatively lower high.
Indeed, the restaurant chain’s shares closed below key support at $61.50 on Monday on above-average volume, raising the possibility for further declines in the weeks ahead.
Monitor These Chart Levels Amid Further Selling
Amid ongoing weakness in Chipotle’s stock, investors should watch four key areas where the shares may find buying interest.
Firstly, it’s worth monitoring the $56 level, an area on the chart where the price may encounter support upon a fill of the March 19 pre-breakaway gap, the day before the company’s shares jumped more than 3% following the the stock split announcement.
Bulls’ failure to hold this level could see a lower gap filled at around $50, which also currently sits just below the rising 200-day moving average.
Further downside could spark a decline to around $47, a region where buyers may perceive value near a December 2023 swing high.
Finally, a more significant correction could see the shares revisit $43, where they would likely attract bargain hunting near a trendline stretching back to June last year.
When monitoring the support levels outlined above, investors should seek confirmation from other technical indicators, such as an overbought RSI reading or a bullish candlestick pattern, that provide additional clues the current retracement in the stock might be coming to an end.
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