Written by Corey Rosenbloom

Chipotle Mexican Grill, Inc. (NYSE: CMG) stock collapsed in 2015 & 2016 was not kind to Chipotle either. Could 2017 be the year that breathes fresh life into this down-trending stock? Was Wednesday’s action a key marker of a trend reversal or a vicious bull trap?Let’s find out:

We generally bet on a trend in motion to continue, but we know that (unless a stock goes bankrupt) even persistent trends do not last forever. With the breakout below the falling 50 week EMA and upper Bollinger Band, we may be seeing the initial signs of trend reversal in Chipotle (CMG) here.

Note the positive momentum divergences all through 2016 and the first firm breakout above the falling 20 week EMA that took us toward – and now above – the falling 50 week EMA.

The next stage would be for price to remain above the 50 week EMA and then the 20 week EMA to cross above it, ideally...with a visual uptick (confirmation) in volume. If so, we have a trend reversal in its earliest stages and the birth of a new uptrend that could take us through $500 and beyond.

Here’s the picture to watch closely into April on the Daily Chart:

Right now the chart looks like a jumbled mess and it is. It’s officially a sideways trading range with $390 and $440 as outer range boundaries. On the broader (weekly) context, we may be seeing an Accumulation Phase or Rounded Reversal (which you can’t see on the chart below due to the perspective).

Watch what happens at the $440 and $430 levels which are prior resistance (reversal) highs. It’s fine for price to dip back toward the $430 level here but it shouldn’t go far beneath that IF we’re indeed seeing the early stages of a trend reversal.

We’d again also like to see a spike-up in bullish/buy volume should shares remain above $440 and, of course, if price holds above $440 and trades “up away from it,” then we’ll be confident in the probabilities that price actually has reversed, that buyers are accumulating, and Chioptle’s worst stock-price days are behind it.

Any move under $430 that takes us back under $395 and the whole bullish deal is off (bull trap).