Sunday, October 12, 2014

CAT Caterpillar Weekly Chart Technical Patterns M Top Sideways Symmetrical Triangle Bull Flag Rising Wedge

The CAT chart is worth a look from a technical trading perspective. For you budding technicians the CAT chart provides a one-stop shop of technical pattern examples. Long-time followers of Keystone remember the green sideways symmetrical triangle drama with Caterpillar during 2013 that ultimately resolved to the upside. The vertical side of the triangle is about 15 to 18 handles so the breakout at 83 targets 98-101. Price then rockets higher with the neon blue bull flag pattern. Typically, the center consolidation zone is far more sideways providing time to absorb the initial leg of strength. Nonetheless the first leg from 82 to 97 is 15 handles, then consolidation, then the second leg starts at 94 so the target is 109-110. Bingo. Price nails the bull flag target as the top.

Price squeezes into a rising wedge pattern as the top is formed (a bearish pattern). The red lines show negative divergence across all indicators so the top call is an easy one to make and CAT could have been shorted with reckless abandon. The world's largest short seller, Jimmy Chanos of Kynikos Associates, has been calling for CAT weakness over the last couple years so he finally has a broad smile on his face seeing the collapse over the last three months.

Price formed an M Top or double top pattern which aided in identifying a stock in trouble. Note that at the first price peak, all indicators are negatively diverged so this told you that price was going to receive the smack down and also that price was not interested in coming up for another higher high after that. The MACD line was hinting at the tiniest bit of upside juice still remaining which helped price recover and print the second peak creating the M Top, but the MACD was negatively diverged as well at the first peak so price did not have much juice when it came back up, and then it promptly collapsed.

The indicators are weak and bleak so lower prices would be expected after any recovery move. Stochastics are oversold and will help set up a bounce perhaps from the 200-week MA at 90.45. The 97-ish S/R is key so perhaps a continued softness for a week or three to 88-92, then recovery for a few weeks to 97-100, then roll over again to sub 88.

The equipment stocks were beaten last week including AGCO, DE, TEX, TWI and there was no joy in JOY. If you do not need large equipment you do not need large tires for the equipment so GT and CTB are stabbed lower. Key bellwethers are weakening including equipment stocks, trannies, semi's, rubber, copper and YUM that is a bellwether for China to name a few. On equipment stocks, think about it. Every construction project, your home or apartment building, roads, bridges, even the local playground, begins with a hole in the ground created by earth-moving equipment. If the equipment stocks are crumbling, so is the global economy. 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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