Caterpillar Inc. (CAT) turned weak in recent days generating a number of bearish signals. Let's go through them one by one and then talk about risk.
In the daily bar chart of CAT, below, we can see that while prices have improved from an October low the overall pattern the last twelve months is still bearish. Prices held above the bottoming 200-day moving average line for the month of April and the very beginning of May but prices have weakened significantly in recent days. The slope of the 50-day moving average line is now bearish and CAT has made a number of closes below the 200-day line.
The volume of trading has increased the past two weeks or so and the daily On-Balance-Volume (OBV) line has turned downward continuing a long decline. A declining OBV line happens when sellers of a stock are more aggressive.
The Moving Average Convergence Divergence (MACD) oscillator is about to cross below the zero line for an outright sell signal.
In this weekly bar chart of CAT, below, we can see that the bears are still in control. Prices just closed back below the flat to declining 40-week moving average line.
The weekly OBV line has been pretty neutral since early 2018 and the weekly Moving Average Convergence Divergence (MACD) oscillator is narrowing toward a fresh sell signal.
In this Point and Figure chart of CAT, below, we can see a potential downside price target of $117.67.
Bottom-line strategy: CAT has been weakening since early 2018 and that downtrend does not appear to be over. Traders and investors should avoid the long side of CAT as a retest of the lows of 2018 is possible.
