This CAT Will Bite

 | Jul 05, 2013 | 11:07 AM EDT  | Comments
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If a stock has gotten cheaper, that doesn't necessarily mean it is a bargain -- and, from a technical perspective, Caterpillar (CAT) is not the picture of a healthy stock. In fact, it looks like it could suffer more on the downside. Let's take a look at why that is, as well as what you'll need to see before Caterpillar might finally start to look good again.

First, if we just look at the moving averages on the daily chart, we'll see the price is below both the 200-day and 50-day simple moving averages. That's a bearish sign. Also, the five-day exponential moving average is below the 13-day EMA, which serves as another "sell mode" signal.

Caterpillar (CAT) -- Daily
Source: Dynamic Trader

I do not see any meaningful support in Caterpillar until the $76.44 area, at the 1.272 Fibonacci extension of stock's last major swing higher.

Beyond this, since the May 9 high, the stock has shown a clear pattern of lower lows and lower highs -- and the "bearish symmetry," as I call it, is still intact. Symmetry, as I define it, is similarity or equality among a stock's swings in the same direction. On this chart I have highlighted the last three minor rallies, which have all been similar at $2.99, $2.66 and $2.73, respectively.

Bottom line: Caterpillar has thus far failed to rally more than $2.99, which tells me the bearish symmetry is intact -- so, unless the stock can manage such a climb, it will remain a short candidate in my view. If you don't want to be a seller of this stock, at least wait to see a shift in the moving averages. Also, of course, make sure you see a rally from any new low that lasts for more than $2.99.

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