Should You Be Long Caterpillar? This Expert Answers In 2 Charts

In its Dow Thirty weekly report, Eagle Bay’s JC Parets looks into Caterpillar Inc. CAT’s stock and its movements.

Weekly Chart

Structurally, the firm wanted to stay away from the stock since it broke the uptrend line from late-2013 (dashed line in the chart). After a severe selloff, the analysts said they wanted to be buying down under $80, an area that has served as support since 2012, and also embodies the 38.2 percent Fibonacci retracement of the 2008-2011 rally.

“We said that momentum staying out of oversold conditions on this correction would be a positive and so far we are getting that (although barely). Relative strength is still a disaster rolling over last summer at former support. But this still looks an area we want to be accumulated shares structurally,” the report explains, adding there is no reason to be long below the 2012 lows.

Daily Chart

For short-term perspective, the daily chart can result handier. The “failed breakout in July and successful retest in early September was the catalyst to really break this down,” Parets says. These sell-offs could get momentum in a bearish range.

In addition, “with this bullish momentum divergence failing in December” Eagle Bay wanted to seek short opportunities with a downside target of $79.50, based on the 161.8 percent Fibonacci extension from the rally experienced in Fall.

The stock hit this target in late-January; and the firm said this is where they wanted to be covering shorts. “At this point, based on the more bullish structural picture, momentum diverging positively again, and downside objective reached, we can still stay long only above the January lows. I would be taking profits near 90 which was formerly support and now represents the 38.2% Fibonacci retracement of the November-January decline,” Parets adds.