Option Investor
New Plays

Burritos, Credit Cards, and Pipelines

HAVING TROUBLE PRINTING?
Printer friendly version


NEW BEARISH Plays

Chipotle Mexican Grill - CMG - close: 44.68 change: -0.75 stop: 50.05

Why We Like It:
Rising costs for ingredients and a slowing consumer are bad news for CMG. CMG has been stuck in a bearish channel for months. A great entry point would have been the failed rally, bearish engulfing candlestick on October 30th right at the top of the channel and its 50-dma. However, after six days of consolidating sideways it looks like the downtrend is picking up again.

We are playing with a wide (a.k.a. aggressive) stop loss at $50.05. More conservative traders will want to consider a tighter stop loss. We are setting two targets. Our first target is $40.25 because the $40.00 level is big support. It was support in October and it was support right after the stock IPO'd back in 2006. There could be a lot of buyers there willing to double down. That is why we are suggesting readers exit the majority of their position at $40.25. We're setting a secondary target because until the trend changes CMG forecasting a much lower price. Our secondary target is $35.50.

Important! Traders should note that CMG has a high amount of short interest. The most recent data listed short interest at almost 35% of the 31.9 million-share float. That is a large amount of short interest and a small float, which is traditionally a recipe for a short squeeze.

If you look at the seven-month bearish channel in CMG there have been a couple of short squeezes but they keep failing. That doesn't mean we can't lose money here.

Annotated chart:
CMG

Picked on November 11 at $44.68 
Change since picked:     + 0.00   			
Earnings Date          02/12/09 (unconfirmed)    
Average Daily Volume:       752 thousand    


Capital One Financial - COF - close: 32.05 change: -0.51 stop: 33.05

Why We Like It:
It might seem like we may have missed the move after a $10 drop in COF. The stock has been crushed in the last several days. Now COF is testing significant support at the $30.00 level.

COF has massive exposure to the ailing consumer and like foreclosures there has been a rising default rate on credit cards. While you might think this may be priced into COF's stock price the trend is suggesting new lows ahead.

We want to see a breakdown under support. Our plan is to short COF at $29.75. If triggered we have two targets. Our first target is $25.50 because there is some support near $25.00 back in 2003-2002. Our secondary target is the $22.50 mark. More aggressive traders may want to aim for $20.00.

This is a very volatile stock that can see $10 swings in just a couple of days. Readers should consider this a very high-risk play.

Annotated chart:
COF

Picked on November xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          01/22/09 (unconfirmed)    
Average Daily Volume:      12.8 million 


Plains All American Pipeline - PAA - close: 37.16 chg: -2.15 stop: 40.05

Why We Like It:
It looks like PAA's recent earnings beat has already been forgotten. The stock's bounce from its lows has run out of steam and we're seeing shares roll over. Today's close under support near $38.00 looks like our entry point.

We're suggesting new bearish positions here with a stop loss at $40.05. Our first target is $31.00. Our secondary target is $27.00. This play may take a few weeks to occur.

Annotated chart:
PAA

Picked on November 11 at $37.16 
Change since picked:     + 0.00   			
Earnings Date          02/12/09 (unconfirmed)    
Average Daily Volume:       647 thousand    


Premier Investor New Play Archives