When Will Chipotle Investors Lose Their Appetite?

It has been a rough six months for Chipotle Mexican Grill, Inc. CMG. Even before it was besieged with multiple food quality problems at its restaurants across the country, the company had began to repel off its all time high that was made last October 13 at $757.

The ensuing decline did not find a trade-able low until it bottomed out at January 12 at $399.14.

The rebound off the lows was capped on March 8 at $542.50 and has come nowhere near that area since that day.

The Latest Bad News

Whether or not the descent was more symptomatic of the shift out of high beta stocks into value stocks or it was dragged down by the decline in broad market is hard to determine.

What is not hard to determine or decipher is the fundamental information offered by the company earlier this week. After the close on Tuesday, the company announced that it foresees a large Q1 loss of $1 or worse, along with QTD February comps that were down 26.1 percent. The day following the bad news (which one would think would knock $100 off its share price), it bottomed at $473.11 and rallied to reach $506 before falling back to close at $500.35.

Thus making $500 a key psychological level for investors to focus on, which it has distanced itself from.

Perhaps investors are now taking note of the most recent analyst action in the issue.

Wall Street Action

On Thursday, Jefferies downgraded the issue from Hold to Underperform and lowered its price target from $390 to $350. It should be noted that the firm's price target is substantially below its mid January low.

For now, investors buying into the decline or going against the fundamental information offered up by the company; what may be especially concerning is the "or worse" comment added on to the prediction of $1 loss versus an expected gain of $0.11.

April 19 Next Key Date, Look At The Technicals

Of course, the company can reverse its comments at any time, but most likely investors will have to wait until to April 19, when it reports its Q1 results. Between now and then, investors will be banking on some upgrades from the Street or the absence of further outbreaks at Chipotle restaurants.

From a technical perspective, the issue has a lot of overhead supply to chew through to get back to all time highs. Just imagine all the investors that piled into the issue after July bottom near the $600 level and and were sitting fat and happy when the issue reached its all time high in October.

Along these lines, how about all the burrito lovers, that nibbled in the issue during its swift $350 decline in three months. Many of them will be resting limit orders at the major round number levels, $500, $550 or $600 to wiggle out a small loss or a scratch.

Most importantly, these investors who bought high and are trying to sell higher will be contending with longer-term investors who are still sitting huge profits.

Keep in mind, the issue has rallied from its November 2008 low ($36.86) or over 1000 percent even at its current level ($460).

A Worst Case Scenario?

If any of those large investors decide to hit the exit button, there is no telling how low this lightly traded high-priced issue will fall. Just take a glance at the chart of LinkedIn Corp LNKD, when the big players decided to dump the issue on February 4 for a taste of what could happen.

For those that are still believers in the issue, a breach of the current low of the move ($399.14) may be a signal to look at the menu of investment alternatives in the sector.