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Signals Matter Investment Approach: Short Signals Watch – Chipotle

Red Sun-Dried Pepper a basket on wooden table
Chipotle Mexican Grill, Inc. | Short Signals Watch

Below, we use the Chipotle short signals watch as a trade example which highlights our broader investment approach, long or short, here at Signals Matter.

Red Hot Sun-Dried Peppers

Honestly, I’ve stayed away from these peppers. Always have, since prior days globe-trotting with Mexican and Argentine buddies at the World Bank who had a stronger tolerance for the hot stuff. They used to down these by the dozens, before, during and after meals. But not me.

Investors are staying away too, as the once wildly popular Chipotle Mexican Grill has stumbled.

A Picture Perfect Short Sale

Here at Signals Matter, we’re totally agnostic (as in we don’t care) if we Signal a long or short position in a particular stock. Long is fine, but shorting a stock (selling it and buying it back at a lower price) can often yield higher return as overvalued securities tend to drop on a dime when out of favor, falling much more quickly than they rise.

This has been the fate of the Chipotle Mexican Grill (NYSE: CMG), a popular quick-service restaurant chain that operates 2,250 quick-casual eateries popular for their burritos and other Mexican food items.

Here’s How We Set This Trade Up

Pretty straight-forward, really. On the fundamental side, Chipotle’s revenue and its stock price had been increasing year-over-year from 2009 to 2015, with a brief stumble in 2012, until 2016 came along and food safety problems caused revenue to slump, from $4.5 billion to $3.9 billion in a single fiscal year – setting up a “red hot” short.

Here’s How We Managed the Trade

Chipotle Short Signals Matter

Chipotle’s most recent high occurred in July/August 2015, placing the stock in potentially overbought territory. The chili peppers had just become too hot.

Sure enough, on the news of food contamination, CMG sold off through December 2016, establishing the downtrend, then bounced back up far enough for our Signals Watch tool to put CMG on its Short Watch List in March 2017.

The set up was in place. We would simply await substantive technical weakness to trigger a Short Sale Signal.

Yet CMG continued to rise into May so we hung out on the sidelines, as you would your kid’s no-score soccer match, yawning until CMG finally rolled over and headed south in early June, with a noticeable increase in downside volatility that triggered our short entry Signal (marked on the weekly stock chart above).

The Rest is History

We simply followed the stock down with a tight trailing stop until it reversed on September 1 (crossed our goal line), triggering a Signal to buyback the stock.

This Signal rewarded Signal’s Matter’s private Subscribers with a 44% gain over an 11-week period.

Lessons Learned

Here were the takeaways for our investors … 1) be patient: wait for the setup before initiating the trade; 2) 2nd waves down can reduce entry risk when taking on short positions; 3) use close trailing stops to protect gains; 4) volatility triggers are a useful way to both enter and exit trades.

And Most of All

Remember that trading is about the gains you book – not about what you may have left on the table. Who cares that we missed the precipitous plunge in CMG in late 2015. This triggered the setup and a safer entry point. The 44% gain was worth the wait.

Trading is about making money, not about getting greedy. Most importantly: it’s about not losing money. Always cut your losses.

Even the best traders get the direction (long or short) right just a little better than 60% of the time. The trick is not always predicting a long or short move—it’s knowing and trusting the signals to cut your losing trades immediately and let your winning trades run.

SIGNALS WATCH | Taking the Stress Out of Investing
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No worries. Signals Watch is a weekly deliverable of Signals Matter that showcases individual stocks and exchange traded funds that meet our rigorous technical and fundamental criteria for investment.

Why is Signals Matter important to you?

Because our Signals Take the Stress Out of Investing

Smart investing is about living, not trading; about knowledge, not fear. That’s why we do the heavy lifting here at Signals Matter, why we signal the trade and why we manage the risk. All you do is pull the trigger, if you or your advisor are so inclined.

We built Signals Matter because we know that almost no one outside of a professional investment platform has the time, interest or resources to select, combine and derive sophisticated trade Signals as we do from our wide, essential spectrum of technical and fundamental filters.

Simply Condensed

Yet we know as well that anyone, including you, can deploy these tools if properly and simply condensed to an unpretentious dashboard of user-friendly Signals.

Join Us

To subscribe to Signals Watch (or to our Trend Watch and Recession Watch deliverables, which monitor markets for icebergs and opportunities), keep a lookout for our public Website which goes live in mid-November.

Thereafter, you can join our private community of investors eager to let their profits run, cut their losses short and generally navigate the choppy waters that lay ahead without worrying about icebergs or lifeboats.

In the Meantime

Be sure to visit our interim Blog site at for candid talk about where we are, how we got here, where we are likely going … and why.


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