Sunday, January 26, 2014

CAT Caterpillar Weekly Chart Sideways Symmetrical Triangle

CAT is the warm-up band for AAPL tomorrow. Caterpillar reports before the opening bell and Apple reports after the closing bell. Both bellwethers will greatly impact the broad indexes. CAT is a global bellwether and a direct read on the health of the Chinese economy, or lack thereof. The decision is at hand. The sideways triangles are over two years old. The tension is building. One month ago, price popped out the top side so the bulls thought the go signal was declared, however, the spurt was short lived as negative divergence immediately formed and smacked price lower. The weak China data and outlook created market negativity last week.

Let's call the pivot area 83-86. The move out of the triangle will be epic. An upside break out indicates that China is far better off than anyone thinks, orders are robust, earth movers and other equipment are needed since the global economy is running on all cylinders, or, a downside break down occurs indicating that China is far worse than anyone thought, orders for machinery are down indicating a slowing construction market, and overall, the global economy is far weaker than anyone thought. The thick red line is about 30 handles and blue about 50 handles adding to the drama. An upside breakout targets 115-135. A collapse from the triangle targets 35-55.

The idea is that the economy, especially China, is slowing so the direction would be down but it remains a toss-up. The chart is not tipping its hand. CAT earnings in the morning will set the mood for the markets. Price, the apexes of the sideways triangles, the flat moving averages, all converge to this confluence at 83-86. The bears have the upper hand from a macro and fundie view since even if a healthy beat occurs, CAT may lower guidance in light of China's slowdown. The bulls will try to treat the pull back as a simple back kiss of the trend lines and will try to start the upside move.

CAT may simply drift through the sideways channels at 75-92 or 75-97 for the whole year. CAT's forward guidance in the morning is key since if it disappoints, then the broad market will be disappointed moving forward, if happy, markets will be happy. CAT will be on stage in the morning. Will they receive a standing ovation or will they be pelted by tomatoes? 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.

Note Added 9:09 AM on 1/27/14:  CAT beat handily on earnings but most importantly announces a $10 billion buyback so it catapults over +7% higher to well over 92. Interestingly, the 92 is that exact overhead brown resistance line. With a new high in the short term, monitor the indicators to see if negative divergence forms again, or not. CAT may be following the move in NFLX which catapulted higher on earnings and may now roll back over to the downside. Caterpillar is a key global bellwether so the happiness should help emerging markets recover although oddly the company is basing future growth prospects more on the developed markets. The CAT earnings create optimism and improve the market mood this Monday morning.

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