Caterpillar Chart Weakness Appears Limited

 | Mar 13, 2017 | 1:18 PM EDT
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Caterpillar   (CAT) has attracted a lot of unwanted publicity in recent sessions. I will let others who understand the issues and risks debate it while I will continue to see if investors are voting with their feet.

In this daily bar chart of CAT, below, we can see the most recent price action. Prices have been stalled for about four months as they traded back and forth around $95. The gap up in early November from $85 to near $90 remains unfilled. The 50-day moving average turned up in July and the line peaked in early February and has since flattened out. The slower to react 200-day moving average line is still rising.

The On-Balance-Volume (OBV) line has been weakening since late January and tells us that the volume of trading has become heavier on days when CAT has closed lower. Price momentum has slowed from November and it has diverged from the slight new highs in January and February. This bearish divergence may be playing out now as CAT has broken the lows from November till now.

In the three-year weekly chart of CAT, below, we can see that prices are still above the rising 40-week moving average line. The weekly OBV line has been up and down with the price action the past two years. The Moving Average Convergence Divergence (MACD) oscillator has been weakening since December and recently signaled a take profits sell signal.

Bottom line: CAT is likely to be vulnerable to headline shocks in the days and weeks ahead. Prices might erode further into the $90-$85 area but without a major top formation it is hard to envision much further downside.

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