Shares of Caterpillar (CAT) have been moving lower from a peak in early April. The shares are now trading below the declining 50-day moving average line.
Let's see what else the charts reveal and formulate a game plan.
In the updated daily bar chart of CAT, below, I can see that trading volume has increased the past five weeks or so and that tells me that traders are voting with their feet. The On-Balance-Volume (OBV) line shows a weakening trend since early April and suggests that sellers of CAT have been more aggressive than buyers over that time frame. The Moving Average Convergence Divergence (MACD) oscillator is below the zero line now and in a bearish alignment.
In this weekly Japanese candlestick chart of CAT, below, I can see a bearish engulfing pattern at the top of the chart. Prices are moving lower but are still above the rising 40-week moving average line. The weekly OBV line shows us a turn to the downside. The MACD oscillator on this time frame has also turned lower.
In this daily Point and Figure chart of CAT, below, I can see a downside price target in the $281 area.
In this weekly Point and Figure chart of CAT, below, I can see the same price target as the daily P&F chart above.
Bottom-line strategy: To me it looks like CAT is still in the process of correcting its rally from early November to early April. Traders should stand aside and wait for a better buying opportunity in the weeks ahead.
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