Patience is the key to success not speed. Time is a cunning speculator’s best friend if he uses it right.
— Jesse Livermore

The market will make a fool out of anyone. Even when you are right, there will come a time where your patience is tested and you will subsequently question yourself. With the rush of bad news in Chipotle a few weeks ago you would have believed that the stock would be left for dead. The market was poised to make a mark out of anyone however and test the resolve of anyone who was waiting for damning news (myself included).  

A little over a week ago I wrote about closing half of my $CMG positions. Not because I did not believe in all of the bearishness, but rather because the stock was not behaving how I would like. I also highlighted that we would wait for our cue to re-enter puts in the stock and play it for some more downside. A few days later we got our catalyst. 

Jim Cramer had the Chipotle management on his show late last week. In the interview the CMG CEO told Cramer and his audience that the E.Coli scare has been contained and that it essentially would not trouble the company moving forward. The stock however, told a different story. The next day CMG gapped up into previous resistance and battled into the 10day yet again. From there, the stock sold off and continued to do so for three days. On that failure, I added to my existing position and used the high set as my stop. 

CMG failed trend

With a little bit of luck, a lot of patience, and even more homework the trade did not present a failure or retest of trend of any kind. With the market's poor reaction to Aunt Yellen and her crew's rate hike decision the stock continued to prove a good one. 

In Reminiscences of a Stock Operator the lead character Larry Livingston (Jesse Livermore's character) speaks on many occasion of being in a trade and watching the stock operators manipulate the stock. He comments on how he's been in the right trade and watched his paper profits all but evaporate. This is the scenario I found myself in prior to being given the opportunity to add to the position. There comes many times as a stock trader where your resolve will be tested. This scenario proved no exception. And with the price action staying consistent but the swings growing wild I would be lying if I told you I didn't question the trade. That said, the stock failed the highlighted level (again) and sure enough the weak tape was correct again as more E.Coli news circulated. 

As important as it is to hold true to the setup it is equally important to take your profits when you are handed them. Without expecting any sort of news like this I/we would be foolish not to capitalize on this gift. With that said and with IV shooting through the roof I was able to clear off my books more than 40% of the position for stellar profits. The cost of the trade and then some was removed and I will continue monitoring the issue closely. 

Here's a timestamped notice of the position and how it eventually turned out. 

 CMG position highlighted this morning.

CMG position highlighted this morning.


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For the sake of keeping tabs, lets take a look at some important levels CMG will face moving forward.

CMG Weekly


DERIVATIVE


With a dwindling consumer base many of these customers will have to go elsewhere. People still have to eat, you know? That said, it is plausible that CMG competitors Moe's and Q'doba see an uptick in traffic YoY. It's also very likely that other fast casual dining options start to get more volume. So with that said, let's take a look at both JACK and PNRA: 

JACK Rangebound

PNRA Constructive

Between the two charts, it appears that JACK provides the cleanest setup to the upside as the issue has been rangebound for several months now. PNRA also sets up nicely above 200/share.

We will keep an eye on the issues moving forward and look for a continuation. As always if any of this has been helpful please comment/like/share. 

 

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