Chipotle is set to report earnings after Tuesday's closing bell, and perhaps surprisingly, the chart is looking better than it has in a long time.
The company is still facing significant fundamental challenges., but on a technical basis, shares of Chipotle are making a series of bullish signals that could suggest upside ahead.
The stock, trading just above $322 per share on Monday afternoon, has been attempting to form a base at the $300 level in recent months. It has tested that level four or five times over the past two months. The fact that it has been able to hold that level so many times is encouraging.
In another heartening move, the stock was able to hold above its 50-day moving average last week following a pullback as it received a downgrade. Finally, the stock's recent (though admittedly mild) "higher high" it made is a positive sign, too.
As I said, the stock is far from being completely out of the woods. If its upcoming earnings report is the catalyst that finally leads it to break below the key $300 mark, that is obviously going to be very negative on technical basis. Furthermore, it's worth noting that the short interest in the stock is quite high.
It's been said that whenever a stock that has seen a flurry of negative news over a long period of time begins seeing some less negative news, the stock can frequently see a strong rally. Therefore, given that the stock has been forming a solid "base" in recent months, Chipotle could actually be getting ripe for a surprise rally.
In other words, this is a more of a "lottery ticket" situation than anything else. We are certainly not pounding the table on this stock, however there is no question the technical picture is improving for the first time in a long while. And thus, risks might be higher on the short side than on the long side on a near-term basis.
