Caterpillar is a stock that I have charted on the monthly timeframe several times over the past year. At first, we discussed the initial expected overhead supply back in the March 2012, when the industrial giant arrived back at the scene of prior all-time highs from 2011 up at $116.
And then we later observed that the stock should hold the key low-$80’s as major multi-year support, as that area had been a battleground for quite some time.
That was all pretty standard technical analysis, and it worked out nicely.
However, after expected major resistance and then expected major support, now comes the tricky part.
Caterpillar is starting to give the look of a stock in danger of rolling over, potentially forming a massive “M and A” bearish topping pattern dating back to that initial 2011 peak. Thus, another test down below of the low-$80’s would be far more ominous for bulls than prior tests were. And I would even go so far as to say that if buyers fail to support $85, then a test and breach of the low-$80’s appears to be inevitable.
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A bird in the hand is worth nine on a branch? Or are the birds saying stocks are “cheep”?
Compare CAT to FCX, ignoring FCXs merger issues from Nov through Dec – very similar charts, and the same weakness, although FCX is just a bit stronger. FCX looks likely to retest it’s recent lows of around $31. If FCX drops to sub $30 it’s probably bad news. And there is a big descending trendline dating back to Sept it just couldn’t break above.