You should not ignore Caterpillar (CAT) and what the long-term chart is suggesting to chartists. Cats are supposed to have nine lives, but CAT may have used up too many lives the past five years.
CAT has been trending lower the past 12 months, but it still gapped lower this morning. Though some technical argument could be made that today's selling could be a selling climax, we want to put a different spin on this price action.
Aside from a three-week dip below $80 back in 2011, that level has represented important support for CAT. CAT broke the $80 level in July and rallied back to $80 and failed in August. Prices have continued to erode before today's announcements and downside gap. If this gap is filled quickly and prices rally, it might be considered an exhaustion gap -- the sellers have been exhausted and dumped their shares of CAT at what may prove to be a bottom. If volume today is extremely heavy, we could embrace that idea, but it doesn't appear to be heavy right now.
If we haven't reached a selling climax for CAT, then the question is, "What's next for this Dow component?"
In the 10-year chart of CAT above, we can see what happened in 2008 after CAT held the $60 level several times. Now look at the 2011-15 price action and the many times that the $80 held. Now that prices have decisively broken this key support, we could see CAT retest next support from 2010-11 in the $60-$50 area. A further $10 decline in CAT will not help the struggling Dow Industrials find a fall bottom.
