Chipotle Mexican Grill Inc (CMG) remains one of the most heavily shorted stocks in the U.S. Restaurant Sector, but short sellers have been trimming their positions recently with 538 thousand shares covered, -19.2%, since the middle of March.
Chipotle short sellers were selling into the rally for the first 2 Â˝ months of 2019, incurring $500 million of mark-to-market losses, -36.51%, before reversing course and cutting their CMG exposure. Short covering has slowed significantly in April, but we have still seen shares shorted decline by 105 thousand shares, -4.44%. With earnings to be reported after the close today short covering continues, more than 50 thousand shares over the last week and at least as much so far today.
Chipotle and Starbucks Corp (SBUX) are the only two major shorts in the Restaurant sector seeing short covering as short interest in the overall sector has increased by $175 million over the last month. One of the main reasons may be that the two stocks are the biggest losers on the short side this year, down over $1 billion in year-to-date mark-to-market losses.
If Chipotle outperforms expectation in todayâ€™s earnings release expect another wave of short covering as those shorts sitting on the cover-hold-sell fence get squeezed to the cover side. With short covering adding to the post-solid earnings buying pressure we can expect the rally to have some legs and squeeze even more short sellers out of their positions if Chipotleâ€™s stock price pushes through its 2015 highâ€™s.
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Managing Director Predictive Analytics, S3 Partners, LLC
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