Caterpillar Inc. (CAT) is indicated to open around 7% lower this Tuesday morning despite what seemed to be good quarterly numbers. Why the disconnect? Investors need to remember that the markets are forward looking and the next quarter or two may not deliver.
Let's put aside the fundamentals a while and just looks at the charts and indicators. Our last technical review of CAT was in the latter part of September where I wrote that, "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."
The rally ended abruptly in early October and our suggested stop was triggered. Now what?
In the daily bar chart of CAT, below, we can see that prices have made new lows for the move down from January. CAT is below the declining 50-day moving average line and earlier this month the slope of the 200-day moving average line turned negative.
The daily On-Balance-Volume (OBV) line has made a new low for the move down from May and tells us that sellers of CAT remain more aggressive. The Moving Average Convergence Divergence (MACD) oscillator is bearish.
In the weekly bar chart of CAT, below, the indicators have turned down in recent weeks. Prices are below the now declining 40-week moving average line.
The weekly OBV line shows a new peak and the start of a decline while the MACD oscillator has crossed to a fresh outright sell signal below the zero line.
In this Point and Figure chart of CAT, below, we have the most bearish news of all three charts -- a projected downside price target of $99.82.
Bottom-line strategy: With no nearby chart support CAT could sink rapidly to the $100 area in the next few weeks.