During Monday night's Mad Money program, Jim Cramer told his viewers that the cyclical stocks have been some of the biggest surprises this quarter, and that they might not be done heading higher. Stocks like PPG Industries (PPG) and Caterpillar (CAT) .
In this daily bar chart of PPG, below, we can see that earlier this month prices gapped to the upside to make a breakout above $120 with new highs and no retest of the breakout level.
Over the years I have found that when a stock breaks out of a consolidation pattern you sometimes get a quick and short pullback to retest the breakout point. It doesn't always happen so when a stock does not dip to retest the breakout level I consider it a sign of strength as traders are anxious to pay up to get long.
PPG is trading above both the rising 50-day moving average line and the rising 200-day moving average line. The daily trading volume shows an increase in October telling us that more traders and investors are participating in the advance and that is a bullish clue.
The On-Balance-Volume (OBV) line is another way of looking at volume and it moved up to a new high this month to confirm the price gains.
The trend-following Moving Average Convergence Divergence (MACD) oscillator moved above the zero line in September and it is still bullish.
In this Point and Figure chart of PPG, below, we can see the upside breakout at $121.25 and the price objective or target of $149.
In this daily bar chart of CAT, below, we can see that prices broke above the July highs. CAT is above the rising 50-day moving average line and the bottoming 200-day average line. Trading volume has increased this month on the rally and that is a positive for old-time chart watchers like myself.
The OBV line has broken above its September high and reminds us that buyers of CAT have been more aggressive. The MACD oscillator is in a bullish configuration above the zero line.
In this Point and Figure chart of CAT, below, we can see that a trade at $143.60 will be a fresh upside breakout for CAT and open the way to the price target of $174.
Bottom line strategy: Both PPG and CAT display bullish charts and indicators. Trade them from the long side. Risk below $119 on PPG and below $134 on CAT.
(Caterpillar is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CAT? Learn more now.)
