Caterpillar Rallying as Big Machinery Is Moving Again

 | Feb 14, 2018 | 3:25 PM EST
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Caterpillar Inc. (CAT) is starting to purr again. Prices fell from late January but two declines to around $143 held and now prices are moving higher again. We looked at CAT last week where I said, "I want to find a place to rebuild long positions. Ideally a bullish divergence between the price action and our momentum indicator will point the way." Let's see what technical signals we can build with.

In this daily bar chart of CAT, below, we can see how CAT broke below the rising 50-day moving average line and now is poised to close back above it. The rising 200-day moving average line is still comfortably below the market.

The daily On-Balance-Volume (OBV) line only made a shallow dip from the middle of January into early February. The short and shallow decline in the OBV line tells me that there was only limited selling in CAT and committed longs held the bulk of their positions. The Moving Average Convergence Divergence (MACD) oscillator moved below the zero line for an outright sell signal but the two averages that make up this indicator have begun to narrow towards a possible cover shorts buy signal.

In this weekly bar chart of CAT, below, we can see that prices are above the rising 40-week moving average line. The weekly OBV line shows only a small decline and the crossover of the MACD oscillator may be short lived.

In this Point and Figure chart of CAT, below, we can see how the $143.60 level held twice. Prices are back to the top end of the February range and a trade at $158.62 will strengthen this chart.

Bottom line: CAT is showing leadership by bottoming quickly and turning higher. Aggressive traders could go long CAT at current levels and on a close above $160 risking a close below $145.

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