The last time I reviewed the charts and indicators of Caterpillar Inc. (CAT) was at the end of July where I wrote that "Aggressive traders may now want to react to strength above $147 and a weak close below $138." CAT traded weak in August with a number of closes below $138. This month CAT has reversed quickly to the upside and has closed above $147 and the slightly rising 200-day moving average line.
CAT now looks like it might be able to break above chart resistance around $160 -- let's check closer this stock discussed by Jim Cramer Thursday night on Mad Money.
In the updated daily bar chart, below, we can see that CAT has broken the downtrend from January. The slope of the 50-day moving average is now positive along with the rising 200-day line.
The daily On-Balance-Volume (OBV) line shows a decline from May but there is some improvement this month, which tells us of a shift toward more aggressive buying. The daily Moving Average Convergence Divergence (MACD) oscillator is now above the zero line for an outright go long buy signal.
In the weekly bar chart of CAT, below, we can see some improvement from the end of July. Prices are now above the 40-week moving average line.
The weekly OBV line shows about five to six weeks of improvement and the MACD oscillator on this longer time frame just signaled a cover shorts buy signal.
In this Point and Figure chart of CAT, below, we can see the strength this month (look for the "9" on the chart). A trade at $161.81 would be a breakout and open the way to further gains.
Bottom-line strategy: CAT has rallied sharply since the middle of August. A pause in the rally or a period of sideways trading would be normal now. Aggressive traders could add to longs in the $155-$150 area. Risk below $140 for now.