Caterpillar Inc. (NYSE: CAT)

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company’s Construction Industries segment offers construction machinery and related parts, including backhoe, skid steer, multi-terrain, track-type, skid steer, compact, and wheel loaders; track, wheel, and mini excavators; track-type tractors; motor graders. Its Resource Industries segment provides electric rope and hydraulic shovels, draglines, drills, forestry products, highwall miners, off-highway and articulated trucks, electric drive mining trucks, wheel tractor scrapers, compactors, mining trucks, wheel dozers, paving products, tunnel boring and underground mining equipment. The company’s Power Systems segment offers reciprocating engine powered generator sets; integrated systems for the electric power generation industry. Its Financial Products segment provides retail and wholesale financing alternatives for Caterpillar equipment, machinery, and engines; offers property, casualty, life, accident, and health insurance, as well as insurance brokerage services; and purchases short-term receivables.

To review Caterpillar’s stock, please take a look at the 1-year chart of CAT (Caterpillar, Inc.) below with my added notations:

1-year chart of CAT (Caterpillar, Inc.)

CAT has created a simple chart pattern known as a symmetrical triangle. Combining a down trending resistance (red) with an up trending support (blue) forms the triangle pattern. As the support and resistance converge on each other the pattern is created. Since there is no true way to know which way the stock will break, most traders will wait for the breakout or breakdown before entering a trade.

If CAT were to break to the downside, traders might want to wait to see how the stock reacts to its 52-week low support at $80 (teal) before going short.

The Tale of the Tape: CAT has formed a simple symmetrical triangle. A trader could enter a long position on a break above the down trending resistance (near $87) with a stop set under the entry level. However, if CAT were to break below the trend line support (currently near $82), a short trade could be entered with a stop above the trend line.

Would you like assistance in making your TBS trades? If so, email me at Christian@yolopub.com and let’s talk about working together one on one!

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT