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Caterpillar Caves Again

A news-inspired breakdown ends the stock's six-week rebound off early October lows.
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Caterpillar (CAT) is getting hit again today, putting it at the top of list of Dow Industrial losers. The stock is off more than 4% as the pullback from last week's high extends to more than 9%.

This news-inspired breakdown ends the stock's six-week rebound off the early October lows. In the near term, this is certainly a bearish event, one that will carry shares lower. A gap fill move back down to the $65.75 area appears very likely now.

Caterpillar (CAT)

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After putting in back-to-back monthly lows near $63, CAT began to rebound. This recovery move got a big jolt Oct. 5 with a high-volume 5.3% surge. The run began with a breakout gap and eventually carried CAT 20% higher over the next five weeks.

Support at this breakout gap marks a key support zone and should be viewed as a low-risk buy zone for traders. If bulls are unable to stem the bleeding here, which will take considerable effort considering the overhead pressure (daily moving average convergence divergence) now building, a move back down to the 52-week lows is the next stop.

For now, selling pressure remains rather light and, if this remains the case as the $66 level is pierced, buys here may prove timely.

At the time of publication, Gary Morrow had no positions in CAT.