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Shares of Caterpillar (CAT) have stalled out in recent weeks, pounding out a sideways consolidation phase just below the 200-day moving average. We’re noting a confluence of indicators that suggests a move above $355 could signal a new uptrend phase with an upside target above $400. After a significant rally off the April low, CAT pushed higher into early May when the European tariff news caused shares to gap up to the 200-day moving average. For the past three weeks, the price has remained in a tight trading range between the 200-day moving average around $355 and the upper end of the price gap from early May. That $355 level also represents a 61.8% retracement of the downtrend from the January peak to the April low, creating a “confluence of resistance” where multiple indicators line up around the same price point. This would suggest that a break above $355 would represent a significant breakout driven by an influx of buying power. The daily chart also provides a clear risk management method based on technical analysis principles, as a break below $340 would resolve this recent consolidation phase to the downside. If CAT pushes below this short-term support level, that would mean a failure to push above the 200-day moving average and a breakdown of gap support on the way back down. Checking on the weekly chart, we can respect the long-term secular uptrend as Caterpillar has generally remained above an upward-sloping 150-week moving average since the COVID low. There were three tests of the 150-week moving average since 2020, with the most significant break appearing in September 2022. The sell-off earlier this year brought CAT right down to the 150-week moving average as well, serving as further confirmation of the importance of this trend-following mechanism. Last month, the weekly percentage price oscillator generated its third strong buy signal since 2019. The first bullish signal came in May 2020, just as CAT was recovering from the Covid selloff. Another buy signal occurred in October 2022, confirming a bullish phase as Caterpillar traded back above its 150-week moving average. We observed in May yet another bullish PPO reversal, suggesting that the test of the 150-week moving average has resolved into a new uptrend phase. Finally, we can use a point & figure chart to strip out the noise of day-to-day price movements and focus instead on the overall trend. Point & figure charts show bullish trends in a column of X’s and then switch to a column of O’s when the price action reverses to a bearish trend. The most important buy signal is a “double top breakout,” when a column of X’s breaks above a previous column of X’s. Here we can see that Caterpillar is very close to a clear double top breakout, with a push above $355.14 confirming a new buy signal from this classic charting approach. The point & figure chart also lines up well with the daily price chart for risk management purposes, as a break below the $340 level would confirm a failure at resistance. David Keller, CMT marketmisbehavior.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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