Hey traders from around the world! I hope you are doing swell! I am checking out CAT these days and pretty pumped and excited about some of the price action it’s been doing recently.
CAT is down around 35% from just a few months ago. I was confirmed bearish as of 7/23/15 when it broke through the massively strong support of $78.30. From there, it did plummet some $16.
On 9/24/15 CAT appears to have formed a bearish exhaustion gap. Why do I call it that? Well, CAT had huge volume on the day. Usually volume is a good thing, but it can also indicate the end of a move, if massive amounts of volume come in towards the end of a move. In this case CAT had already sold off dramatically. Now, that gap has been filled. So, using hindsight, we can say likely it was an exhaustion gap. From 10/2 – 10/5 CAT formed a nice bullish retest gap creating what I also believe to be an island reversal chart pattern. You have 2 gaps, around a similar price at the bottom of a trend.
This link is just a chart and idea of what I was thinking at the time on CAT, before earnings.
https://www.tradingview.com/chart/CAT/8MHbYAiT-Alive-Cat-Bounce/
You will notice, it almost worked out too well. Kind of eerie, but I like it!
So, what’s the current set up on CAT? Well, right now it’s battling the 50 ema on the daily. I’m bullish to neutral on the stock. Therefore one could consider one of the following.
- Nov put sales around the $68 strike
- Purchase shares now, at market, since the stock is following the above plan.
- Purchase shares or January $70 calls with a close above $72.39
- A combination of choice 2 and 3 while implementing a covered call sale at $80 for December.
Whatever your specific strategy on CAT, I am slightly bullish at it will be fascinating to see how it all plays out! Thanks so much for reading this article. I hope you have an amazing upcoming holiday season!
Until next week, remember, love life, live life and trade it!
Jerremy Alexander Newsome
