Expert: How To Play Caterpillar, In 2 Charts - Caterpillar (NYSE:CAT)

Market Technician and Eagle Bay Capital founder JC Parets tracks the movement and performance of the stocks in the Dow 30, looking into the companies every week. This article will go over his comments regarding Caterpillar Inc. CAT.

Weekly Chart

Structurally, Eagle Bay 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, they said they wanted to be buying down under $80. “This area has served as support since 2012 and also represents the 38.2% Fibonacci retracement of the 2008-2011 rally,” they explain.

The analysts 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,” they add, concluding they don’t see any reasons to be long Caterpillar below the 2012 lows.

Daily Chart

Short-term, that “failed breakout in July and successful retest in early September was the catalyst to really break this down,” Parets explicates. The sell-offs got momentum in a bearish range. In addition, “with this bullish momentum divergence failing in December we've wanted to look for short opportunities with a downside target of 79.50 based on the 161.8% Fibonacci extension from the Fall rally.”

The stock hit this target in late-January, which is where the firm wanted to be covering shorts. “At this point, based on the more bullish structural picture, momentum diverging positively again, and downside objective reached,” Eagle Bay can still stay long Caterpillar only above the January lows.

Parets says he would be taking profits near $90, which used to be support and now represents the 38.2 percent Fibonacci retracement of the November-January decline.

The firm suggested adding to longs if the stock surpassed $82, and it did that nicely last month.

Market News and Data brought to you by Benzinga APIs