Caterpillar Is Ready to Take Wing, Yet Again

 | May 16, 2017 | 11:11 AM EDT
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Caterpillar (CAT) has been powering higher since the beginning of 2016 -- and with a strong technical position, we are anticipating further gains in the months ahead, with a test of the 2012 and 2011 highs.

This equipment maker has risen in steps and consolidations over the past year, building a firm foundation for further price gains.

In this daily bar chart of CAT, below, we can see that prices are above the rising 50-day and 200-day moving average lines. There are two upside gaps with strong volume, telling us that there is aggressive buying going on even though the On-Balance-Volume (OBV) line is relatively neutral looking.

The trend-following Moving Average Convergence Divergence (MACD) oscillator gave a cover-shorts buy signal in March and crossed above the zero line in April for an outright go-long signal.

In this weekly chart of CAT, above, we can see that the rising 40-week moving average line has defined the uptrend for more than a year. There is no signs of distribution on the price chart, and the weekly OBV line is poised for a significant upside breakout of its own, being at the top of a trading range of more than two years. The weekly MACD oscillator has been above the zero line in bullish territory since April of 2016, and is now turning up to a fresh go-long signal.

In this Point and Figure chart of CAT, above, we can see a durable uptrend, with three consolidation patterns. A trade at $106.54 will be a fresh upside breakout on this chart and give us a short-term price target of around $110. Strength above $110 should allow us to make more bullish forecasts.

Bottom line: CAT might see further sideways price action around $100 or between $99 and $105 prior to its next upside attempt. Traders should buy a close above $105 and then risk a close below $98.

$110 is our first price objective.

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