Caterpillar (CAT) Stock Chartology: Maintain Tight Trailing Stops!

Vimal Ramchandani

Leonardo da Vinci once said,  “Simplicity is the ultimate sophistication.” Let’s keep this in mind when taking a rather basic view of Caterpillar stock (NYSE: CAT).

On Wednesday, Caterpillar (CAT) said that it’s “China demand is ‘very strong’“, so I thought I’d take a look at it from a technical point of view.

A look at the CAT stock charts…

We can clearly see that the medium term trend is down (denoted by the lower highs from the start of 2018), while the short term trend is up (denoted by the higher lows from the end of October 2018).

The 400 day simple moving average has acted as a price pivot during the past 2 years.

Honing in on the 1st CAT chart below, the critical point to note is that price broke down below the multi year uptrend line (black) and is now back testing it for the 3rd time. That resistance zone is between $143 and $145. While the 1st time in early November 2018 proved to be clear resistance, we did see a bear trap in December of 2018. After retaking the black trend line on the 3rd of December, the stock fell approximately 20% to a low on the 26th.

caterpillar stock research cat investing forecast february year 2019

Is Caterpillar (CAT) on the verge of the another sell off?

There is nothing to suggest that at this moment. In fact, in the 2nd chart below, you can see that we have just closed above the 400 day moving average and short term trend line which has acted as resistance in the past. That level is approximately $139 and it could be used as an aggressive trailing stop in case this stock is setting up for another bear trap.

caterpillar stock research cat trading analysis february year 2019

On a final note, we can also see that the RSI is about to test a down trend line at the same time that price is about to test resistance. Only a decline below the prior pivot low at approximately $126 will lead to some evidence that the trend may be somewhat broken. However, at this juncture, it’s important maintain tight trailing stops.

Twitter:  @vimalvr

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity

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