When I reviewed the charts of heavy equipment maker Caterpillar (CAT) on Tuesday, prior to its latest earnings release, I wrote that "... the stock's refusal to break to the downside may be a tell that the next move for CAT could be to the upside. Stay nimble."
Despite a top-line and bottom-line beat Thursday morning, shares of CAT have broken to the downside in trading. I am not sure how optimistic some traders were but a bearish reaction to what seems to be bullish news is problematic. Thursday's close will be very important.
In the daily bar chart of CAT, below, I can see a "coin toss" picture. Prices gapped lower Thursday and broke below the 200-day moving average line while making a new low for the move down.
The daily On-Balance-Volume (OBV) line shows weakness from late January but so far the OBV line has yet to make a new low for the move down. The 12-day price momentum study shows higher low from late March for a bullish divergence when compared to the price action.
In the weekly Japanese candlestick chart of CAT, below, I have to imagine Thursday's price move. The shares are trading below the recent lows and below the 40-week moving average line. It is still several hours until the close of trading so a price recovery is always possible.
The weekly OBV line is steady and the 12-week price momentum study shows improvement and that is promising.
In this daily Point and Figure chart of CAT, below, it is projecting a downside price target but prices have not (yet?) made a new low for the move down. Fingers crossed.
Bottom-line strategy: I rarely recommend buying weakness and I am not going to do that with CAT. I am going to recommend waiting to see how CAT closes Thursday. A strong close will give us a bullish candlestick. A bullish candle on Thursday and confirmation with a bullish candle on Friday will be the signal I want.
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
