Chipotle (CMG) Takes Turn Breaking Out After Showing Relative Strength

The market remains weak, mired in a tight lower range after Monday’s big gap down. Since the surprisingly good non-farm payrolls number at the beginning of the month, all economic data points have been bearish, and that continued this morning with a downward GDP revision and higher than expected jobless claims. Futures gave back small overnight gains on the news, and we have so far been unable to bounce.

As Memorial Day weekend approaches, don’t expect this action to heat up much. With the market acting weak, traders are adopting a more sniper-like approach rather than looking to build core swing positions. With that in mind, there continue to be good calculated technical trades on the board.

Netflix, Inc. (NFLX) provided follow-through to the upside, squeezing more shorts after yesterday’s potent move, which came on the heels of words from Facebook’s Mark Zuckerberg about increasing partnership. It doesn’t look like this run is over.

Chipotle Mexican Grill, Inc. (CMG) broke out to new highs today briefly before pulling off slightly. The Mexican restaurant chain has been showing relative strength like NFLX over the past few weeks, and finally got some momentum through its pivot high. The announcement of a new restaurant, ShopHouse, could be a catalyst for more buying.

Precious metals ended their multi-day run, and it might be time to take the trade until they further prove themselves again, especially when it comes to silver. Bumping up against its 21-day MA now, let’s see if it can close above.

On the short side, Youku.com Inc. (YOKU) continues to show a lot of weakness. Chinese growth stocks have come under a lot of pressure recently with a wave of fraud revelations, and investors seem to be growing skeptical of the entire space. Is this a case of throwing the baby out with the bathwater, or could YOKU be next in line to get reeled in? That answer remains to be seen, but technically the selling volume and pattern seem to indicate lower prices ahead for YOKU.

Once again I reiterate that if you are actively trading, now is not a time to chase highs and lows, but find the stocks showing the most relative strength/weakness and only play those selectively if you want to trade at all in this tape.

By: John Darsie

Disclosure: Scott Redler has no positions

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