Caterpillar Inc. (CAT) may be using some of its own equipment to dig down lower on charts. CAT was last reviewed near the end of June, where I wrote that "The charts and indicators of CAT are pointed down. Traders should be out and investors need to examine their cost basis - this may be a prolonged decline." CAT declined into early July and has bounced slightly. A bearish dead cross of the 50-day and 200-day moving averages is close to happening so let's check the charts again.
In this updated daily bar chart of CAT, below, we can see that the declining 50-day moving average line is right on top of the cresting 200-day average line. Dead crosses (and golden crosses) tend to be late and well off the peak in price but there are many traders who take note of this signal. The volume of trading in July has been less than the pace in June and does not suggest that we are looking at new buyers entering. The daily On-Balance-Volume (OBV) line shows only a slight improvement since the end of June. The trend-following Moving Average Convergence Divergence (MACD) oscillator has crossed to the upside from below the zero line for a cover shorts buy signal. A cross of the zero line appears to be out of reach for now.
In this weekly bar chart of CAT, below, we can see that prices more than doubled over the past three years. Prices stayed above the rising 40-week moving average line until June of this year but the line is rolling over now. The weekly OBV line is still pointed down from its January peak and the MACD oscillator is crossing the zero line for an outright sell signal on this longer time frame.
In this Point and Figure chart of CAT, below, we can see a serious breakdown on the chart at $136. A bearish price target of $108 is being projected. A significant rally is needed to turn this chart bullish.
Bottom line: A number of the charts of CAT look bearish. A decline to $132 on increased selling could be the tipping point for a deeper decline. Avoid the long side of CAT for now.
