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Edson Gould's Speed Resistance Lines: Chipotle & Green Mountain

|Includes: CMG, GMCR, Netflix, Inc. (NFLX)
As described in our article on speed resistance lines dated September 22, 2011 (found here), Netflix (NASDAQ:NFLX) has fallen below the level of $99.58 in quick crash. Although we thought that the stock would be worth considering below such a level, we have to concede, at the time,  “the difficulty may be that the sentiment that pushed the stock price to $298.73 would likely be just the opposite to push the price down.” Therefore, we’re not buyers of NFLX at these levels. However, we wondered what Edson Gould’s speed resistance lines would say about two other stocks that have had tremendous increases recently.

The first stock is Chipotle Mexican Grill (NYSE:CMG) which has had a tremendous run-up in the last several years. In the chart below we can seen that Chipotle has recently peak around the $342.49 level. Based on Gould’s work, the near term conservative downside target is $200.59 while the extreme downside target is $114.16. If the stock price increases above $342.49 then so too will the downside targets.

The next company that we’re interested in seeing the outcome on is Green Mountain Coffee Roasters (NASDAQ:GMCR). It is challenging to believe that Green Mountain Coffee Roasters is going to increase above the prior peak in the near term. However, there appears to be a tremendous amount of downside risk for this company despite the decline that has already taken place. The conservative downside target is $59.93 while the extreme downside target is $37.21.  Green Mountain Coffee Roasters (GMCR) appears to have the worst technicals since a move below the $37.21 price could bring the stock down to the old support level of $3. 

We believe that it is worth examining whether or not these targets are accomplished. Chipotle Mexican Grill (CMG) actually appears to have some upside momentum in it still. However, we believe that the downside targets are reasonable estimates of where the stocks could go before initiating new research on whether these companies have viable business models.

Disclaimer: This piece is a continuation of the examination of Edson Gould's speed resistance line as explained in prior articles.  This is not an endorsement to sell short at the current levels nor buy these stocks once falling below the extreme downside targets since the stocks have been randomly selected, at best.