What's The Right Time To Bite On Chipotle?

| About: Chipotle Mexican (CMG)

Chipotle Mexican Grill (NYSE:CMG) has been a on a tear for a couple of years, going from under $100 in 2010 to a recent closing price of $376.45. Since January 1, 2011, the stock has risen by 68%, including a gain of nearly $30 just this year.

I did some analysis and broke down the gain in CMG of $161.19 from 1/1/01 to 2/10/12 into two components: Net gains from the start of daily trading to the end, (open to close) and net gains from the closing price to the next day's open.

I am looking to see if there is a specific trading pattern that can be used to advantage. This is information is available in easily downloadable form on Yahoo Finance.

When I ran the numbers for this period, there was a clear trading pattern.

  • During intraday trading, CMG's net gains for the period were $171.63.
  • Overnight, CMG stock actually cumulatively had a net loss of $10.44.

Clearly, Chipotle's mammoth gains took place while the trading session was open. There was no money to be made from a gap up in the morning. Just as much money, indeed, a bit more, would be lost as the stock gapped down.

If you had just bought and held the stock, you would still have done quite well, and would have avoided the excess commission costs of trading every day. What I found most interesting was that this was the exact opposite pattern than for Apple (NASDAQ:AAPL) stock, which gained price overnight and lost money, on average, during the trading day. The details for this pattern in Apple are in this article.

Why is Chipotle Different than Apple?

I have a couple theories why CMG and AAPL have completely opposite daily trading patterns:

Chipotle is a restaurant company that doesn't serve breakfast. Possibly investors grow hungry for the stock at the same time they grow hungry. But, that's probably not the real reason.

Another possibility is the international nature of Apple compared to Chipotle, whose Mexican Grills are located mostly in the US and Canada. It is possible that interest in the stock is also mostly driven by US investors, as opposed to Apple, which gets as much attention from overseas as in the US.

Ultimately, it may not matter the reason for the lack of overnight gains. The trading pattern is clear for those who are interested in trying to take advantage of it. It may turn out to be even more important if CMG stock slows its price advance or corrects, and the buy and hold strategy doesn't provide the returns of the last few years.

Disclosure: I am long AAPL.