Thursday, July 18, 2013

CAT Weekly Chart Sideways Symmetrical and Descending Triangle Patterns

Jim Chanos, the world's largest short-seller, announced a short position in CAT yesterday which hit the stock. Chanos cites the slowdown in China, and the mining sector as a whole, as major headwinds for Caterpillar's yellow machines moving forward. The blue sideways symmetrical triangle, as well as the indicators, and flattening moving averages, all illustrate the sideways indecision in CAT over the last year. Bullish traders are drinking the central bank Kool-aid and believe that blue skies are ahead with a China soft landing and a robust global economy. Bearish traders cite the continued weak economic data, a hard landing in China, and lowered guidance by companies across the stock market as reasons to not believe in the positive story. Hence, the two sides continue to battle. Note how the RSI, stochastics and money flow are all at their 50% levels unable to decide on a direction. Ditto the MACD line near the zero line.

The red descending triangle favors the bear case. A rupture of the 80 level would lead the way to the 50-55 landing zone. Using 85 as a pivot for the blue sideways triangle, and a projection of about 40 handles, the bullish case would be rewarded with 125 in the future while the bears would be rewarded with 45.  CAT is a difficult one to trade due to the indecision described above. It is likely not a good idea to fade Chanos. Watch to see the break out of the blue triangle from the 85 pivot. If the move is lower, watch to see if the 80 level breaks, if so, CAT is a dead man, er, rather, a dead feline. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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