Chipotle Just Broke A Huge Support Level

Shares of Chipotle Mexican Grill, Inc. CMG are trading down about 10 percent on Wednesday afternoon, following a meager Q3 earnings report. The move is particularly important because the stock broke the $388 support level it had been testing since June.

On Wednesday morning’s PreMarket Prep, hosts Joel Elconin and Dennis Dick warned the stock could encounter some “big trouble” if it broke below key resistance levels.

“I do respect the support level here,” Dick said, noting that the restaurant’s stock has been trading between $385 and $440 for several months now. However, he added, if the shares breach the $384 threshold, they could “be at $350 in a heartbeat.”

“Part of me wants to buy because the level has worked seven times before… But, is the eighth time the charm?” Dick asked, referring to whether the stock could breach the level.

Elconin added that breaks in support could be foreshadowed by bounces that get smaller each time.

"When you get to a big support area, bounce several times...and then you don’t bounce as high… that just gives you the idea that this thing is going through to $350, and [could] pop back up to $390.”

“When you have these [low] levels and it just hangs out there too long… it looks like that level is going down today,” Elconin concluded, as Dick added that if the stock did not hold the $385 level when the market opened on Wednesday, Chipotle would be facing “big trouble.”

Shares of Chipotle are trading around $365 on Wednesday afternoon. So, is “big trouble” coming?

Listen to the full discussion at 8:31 in the clip below. 

PreMarket Prep is a daily trading ideas show that focuses on technical analysis and actionable short term trades. You can listen to the show live every morning from 8-9 ET here, or catch the podcast here. 

Image source: Flickr/Mike Mozart

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.