Caterpillar Inc. ( CAT) shares were downgraded to "underperform" (sell) at Baird Financial here on Monday. The stock has been under selling pressure since late January. In my Jan. 31 review of CAT I wrote, "Shares of CAT are still in an uptrend, but some bearish divergences cannot be ignored. A breakdown below $240 could precipitate further declines." Let's check out the charts and indicators of the heavy equipment maker again.
In this daily bar chart of CAT, below, I can see that prices have declined below $240 and are testing the cresting 200-day moving average line. Trading volume has increased from the end of January, telling me traders are voting with their feet. The On-Balance-Volume (OBV) shows a decline from late January, suggesting that sellers of CAT are more aggressive than buyers. The Moving Average Convergence Divergence (MACD) oscillator is in a bearish alignment below the zero line.
In this weekly Japanese candlestick chart of CAT, below, I see a weakening picture. Prices have turned lower and are testing the 40-week moving average line. The two most recent candles show upper shadows, telling us that traders are rejecting the highs. The weekly OBV line is pointed down. The MACD oscillator has crossed to the downside for a take profit sell signal.
In this daily Point and Figure chart of CAT, below, I can see the software is indicating a downside price target in the $169 area.
In this weekly Point and Figure chart of CAT, below, I see the same $169 price target.
Bottom line strategy: Baird is forecasting a price target in the $185 area and that would break the 40-week moving average line. The Point and Figure charts suggest a lower target in the $169 area. Avoid the long side of CAT.
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