Here’s Where Aggressive Traders Could Exit CAT

Shares of Caterpillar (CAT) rallied on Tuesday on the heels of a buy-side upgrade from a sell-side analyst. Let’s look at charts and indicators.

In this daily bar chart from CAT, below, we can see that prices have rallied to test the underside of the 50-day and 200-day moving average lines. A close above these two indicators could occur soon. Trading volume increased from mid-February as prices rose, which is positive. The On-Balance-Volume (OBV) line has started to improve, telling us that CAT buyers are more aggressive. The Moving Average Convergence Divergence Oscillator (MACD) has moved higher for a signal to buy hedging shorts.

In this weekly Japanese candlestick chart from CAT, below, we can see a bullish engulfing pattern marking the February low. Prices may soon close above the lower 40-week moving average and attract more technical buying. The OBV line has been stable since May and a turn higher now would be a bullish sign. The MACD oscillator is narrowing and is close to a turn higher and likely an outright buy signal.

In this daily Point and Figure chart from CAT, below, we can see an upward price target of $261.

In this weekly Point and Figure chart from CAT, below, we can see a price target in the $265 area. It would not surprise us if the software quickly increases the price target.

Basic strategy: In our February 1 CAT review, we reminded readers of our December view that investors could buy at “current levels and/or above $210 and $220. Our price targets start at 241 $”.

At the time, in February, we also said that the recent low in CAT was higher than the lows seen in December. So we were still bullish that CAT might strengthen again and advised to use a stop at $189.

Unfortunately, CAT has now broken through its December lows and would have stopped our long recommendation.

Aggressive traders who don’t mind getting back on the horse could buy back CAT on a one-day pullback, risking a close below $190 now.

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