Chipotle Mexican Grill (CMG) lost 65% of its value from its high in 2015 to its low at the end of last year. Over the last four months it has been attempting to hold above the low and in the process has formed an inverse head and shoulders pattern.
This is not the first time that Chipotle has attempted to form a base and reverse its long term decline, but this is the first time that two key technical indicators are also turning up in unison.
The weekly chart shows the moving average convergence/divergence oscillator making a bullish crossover in December and continuing to track higher. This is a sign of improving trend and price momentum. In addition, the Chaikin money flow indicator has moved into positive territory, suggesting the stock is starting to see some buying interest.
The head and shoulders formation can be seen in more detail on the daily chart. Since it began forming, the MacD has been moving higher in bullish divergence to the stock price. This week Chaikin money flow has advanced above its center line which is short term confirmation of the longer term trend.
And this week Chipotle has moved over the neckline resistance level of the H&S pattern. The measured move from a successful breakout is calculated by taking the height of the formation and adding it to the neckline. It projects up and through the 200 day moving average. This is the first time that has happened in a year.