Shares of Caterpillar (CAT) are rallying Tuesday on the heels of an upgrade to buy by a sell-side analyst. Let's examine the charts and indicators.
In this daily bar chart of CAT, below, we can see that prices have rallied to test the underside of the 50-day and 200-day moving average lines. A close above these two indicators could come soon. Trading volume has increased from the middle of February as prices have rallied and that is a positive. The On-Balance-Volume (OBV) line has begun to improve, telling us the buyers of CAT are being more aggressive. The Moving Average Convergence Divergence (MACD) oscillator has crossed to the upside for a cover shorts buy signal.
In this weekly Japanese candlestick chart of CAT, below, we can see a bullish engulfing pattern marking the low in February. Prices could soon close above the declining 40-week moving average line and attract more technically oriented buying. The OBV line has been steady since May and a turn higher now would be a bullish sign. The MACD oscillator is narrowing and close to a turn higher and likely an outright buy signal.
In this daily Point and Figure chart of CAT, below, we can see an upside price target of $261.
In this weekly Point and Figure chart of CAT, below, we can see a price target in the $265 area. It would not surprise us that the software soon bumps the price target higher.
Bottom line strategy: In our Feb. 1 review of CAT, we reminded readers of our view from December that investors could purchase at "current levels and/or on strength above $210 and $220. Our price targets start at $241."
At the time in February, we also said that the recent low on CAT was above the lows seen in December, so we were still optimistic that CAT could strengthen once again, and advised using a stop at $189.
Unfortunately CAT has now broke its December lows and would have stopped out our long recommendation.
Aggressive traders who don't mind getting back on the horse could rebuy CAT on a one day-pullback risking a close below $190 now.
