TECHNICAL ANALYSIS
Continuation from Friday…….Since our fundamental analysis did yield a strong buy signal for Chipotle’s stock in late 2008 and early 2009, we must now concentrate on the technical side of the equation to see if such a decision would have been confirmed.
As the chart above shows, the company’s stock price collapsed over 75% between December of 2007 and November of 2008. In the midst of the 2007-2009 financial crisis. In fact, Chipotle’s stock price established a clearly defined down trending channel throughout the move. The price then followed this channel all the way down into its 2008 bottom. The stock price proceeded to bottom at $39 a share and then immediately broke out at around $45 in November of 2008.
Giving us a clear sign that the stock price might have bottomed. Any analyst following the company should have watched for this development very closely. It would have been the first sign that the stock price has corrected and is in the process of a bounce. While it would be unclear how long the bounce would last, when we combine such information with our mathematical and timing work below, we could have assumed that Chipotle’s stock price was about to stage a massive multi-year rally.
A second entry point opportunity presented itself in March of 2009 when the company’s stock price broke above its previous high at around $65 a share. Further confirming the change in trend and suggesting that the stock price has much more room on the upside.
In conclusion, technical analysis did confirm our fundamental analysis with two clearly defined buy signals. When the stock price first broke out of its down trending channel in November of 2008 and when it pushed above its previous high in March of 2009. Any investor closely following the stock should have been able to take a position in November of 2008 at around $45 a share. Particularly, when you take our mathematical and timing work into consideration.
To Be Continued Tomorrow……
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