Each Scoop Gets Smaller for Chipotle

Trading at a forward PE of almost 37, Chipotle is far from cheap even after a prolonged period of underperformance by its shares on an absolute basis and, of course, on a relative basis to the epic melt-up in tech/AI names. CMG is not alone, however, as the prominent consumer names like LULU NKE SBUX, even COST of late, have been underwhelming. 

Bulls are looking for an inevitable rotation down to these retail laggards, with some calling for generational buying opportunities in them. But in a clearly bifurcated market I still maintain that history suggests a healthy rotation is much less likely than many seem to realize. The more likely scenario is that whenever the AI mania finally cracks it takes most things down with it, at least initially, and swallows whole any rotation attempts. After all, just consider the cumulative market cap for the heaviest names art the top of the market and compared it to any other basket of stocks, including the retail names. 

On the CMG weekly chart, below, we see three successively smaller rolling tops. It may be just a long-term consolidation, but the headwinds a maturing brand like Chipotle faces, coupled with profit margins squeezed if commodities surge on a second wave of inflation all point to lower share prices, especially below $45. 

Without question, it is still a Nasdaq/AI growth world as the melt-up persists. However, gold and silver threatening fresh breakouts and the lingering threat of Trump/Powell tensions escalating continue to put the second inflation wave view front and center, which means most consumers will feel the heat going forward.