CMG stock hit a three-year peak in Monday's trading
Chipotle Mexican Grill, Inc. (NYSE:CMG) staged an impressive rally off its late-December lows near $383, rallying all the way up above $721 by April 9. CMG's short-lived pullback from here found support at its 50-day moving average, and a more recent bounce from the rising trendline sent the shares to a three-year peak of $727 on May 20. The burrito stock has since consolidated some of these gains, but could be on the verge of a big breakout if this reliable buy signal holds true once more.
Specifically, at the same time CMG is scaling new heights, implied volatilities (IV) are perched at historically low levels, per the stock's Schaeffer's Volatility Index (SVI) of 22%, which arrives below 98% of comparable readings from the last year. According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been four other times in the past five years Chipotle was trading within 2% of a new 52-week high, while its SVI was ranked in the bottom 20th annual percentile.
Looking one month out following these four previous signals, CMG stock was higher each time, boasting an average gain of 7.1%. Based on the equity's current perch at $709.32, another move of this magnitude would put Chipotle near $760 -- topping its August 2015 all-time peak of $758.61.
There's plenty of skepticism priced into CMG shares, which could help fuel upside on a potential unwind. Short sellers have already started covering, yet the 1.9 million shares still sold short account for a healthy 7.5% of the stock's available float. It would take almost three days for bears to buy back these remaining shares, at Chipotle's average pace of trading.
Bullish brokerage notes are a possibility, too. While 16 of the 26 covering analysts maintain a "hold" or worse rating on the outperformer, the average 12-month price target of $683.96 is a discount to Chipotle stock's current price.
