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Chipotle Plunges 15% - More Pain to Come?

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Shares of Chipotle Mexican Grill (NYSE: CMG) have been on a tear over the past few years. In November of 2008, the stock was trading at $36.77. From that point, it gradually rose to an all-time high of $442.40 (4/09/2012) - a gain of over 1,100 percent in that time.

Friday's trading action may be signaling that the good times are coming to an end for the Mexican fast food goliath, as the company's earnings report failed to satisfy investors for the second consecutive time.

In July of this year, a poor earnings report caused the stock to plunge from $404.59 to $277.26 in ten trading sessions - a 31.5 percent drop.

Thursday's earnings report caused a similar reaction, as shares dove 15 percent from $285.93 to $243.

As the five-year daily chart below shows (click to enlarge), the stock is now officially in its first downtrend since 2008. They key support level of $275 was taken out in Friday's beating, and the next support level of $212 is coming up quickly. Beyond that, no support comes into play until the $125 area - nearly 50 percent lower than current prices.

The stock has a history of huge downward moves and does so in relatively short periods of time.

While volatility is expected in the near-term, the key level bears should be concentrating on is $212. A break of that support, which dates back to January of 2011, would signify a huge potential drop to the next closest support level in the low $100's. Shorts should also continue to look at the MACD divergence shaping up at the bottom of the chart as a potential warning sign. As you can see, the MACD indicator is not making lower lowers in relation to the prevailing stock price, which is normally an oversold indicator.

Conversely, should longs be looking to get in Chipotle, a good reference point to use would be $292 - the price the stock was trading at before the latest earnings report. If shares can break above that level, look for a run to the next resistance area at $350. Should that be taken out, nothing comes into play until $425.

Time will tell.

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