Key takeaways
Chipotle shares fell more than 6% on Thursday, just days before a 50-for-1 stock split in the fast food chain.
Institutional investors could book profits ahead of next Wednesday’s split, given that the stock has gained more than 40% year to date and more than doubled since the start of 2023.
A potential bull trap setup and bearish divergence indicate weakening stock price momentum for the burrito maker.
Chipotle shares could find support near the key Fibonacci retracement levels at $3,066, $2,821 and $2,622, which also align with other key chart areas.
Stocks in fast food chain Chipotle Mexican Grill (GCM) will likely remain the center of attention on Friday following a 6.2% decline on Thursday, their biggest daily percentage loss since last July. The liquidation takes place before a 50-to-1 stock split which takes effect next Wednesday, an event that will make the company’s shares more accessible to a wider range of investors.
Knowing that the stock has gained more than 40% since the start of the year and has more than doubled since the start of 2023, institutional investors could be turning a profit before the split. Below we use technical analysis to identify important levels to watch during a retracement.
Chart Signals Weaken Uptrend Momentum
Since I found support around 200-day moving average (MA) In October last year, CMG shares continued to rise strongly as buyers stepped in to buy withdrawals at the 50 day AM.
Although the price broke out of a period of consolidation to reach a new high earlier this week, Thursday was a very varied day and the close below the breakout point at the highest trading volume since the end of March indicates a potential bull trap. Such a move “traps” traders or investors who acted on the breakout and generates losses on the resulting long positions.
Additionally, while the stock reached a new high this week, the relative strength index (RSI) made a lower high, creating a bearish move divergencea signal that suggests a weakening of dynamics.
Watch These Fibonacci Levels During Pullbacks
To determine where the stock may find buying support, we can use the Fibonacci retracement tool extended from October low to this week’s low absolute record (ATH). However, as with all technical indicators, investors should confirm signals with other chart analysis in order to identify high probability areas.
First, shares could find buying interest at the 23.6% level Fibonacci retracement level at $3,066, a region that also matches last month swing low. 38.2% Fib Level at $2,821 Could Mark Another Key support zone, given that it aligns closely with the March 19 pre-breakout gapthe day before, shares of the burrito maker jumped 3.5% after announcing its stock split.
Finally, it is also worth keeping an eye on the key 50% Fibonacci retracement level at $2,622, an area of the chart that is crossing a series of Price action in February and March.
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