Caterpillar Inc. (NYSE: CAT) seems to be poised for a price surge as per its latest charts. The company designs, develops, engineers, manufactures, markets, and sells machinery, engines, financial products, and insurance to customers via a worldwide dealer network. It is the world’s largest construction-equipment manufacturer.
Bullish Indications
#1 Channel Breakout: The daily chart shows that the stock has currently broken out of a downtrend channel. This channel is marked in the chart as pink color lines. This is a possible bullish indication.
CAT – Daily Chart
#2 Price above MAs: The price is currently above the short-term moving average of 50-day SMA as well as the longer-term moving average of 200-day SMA, indicating that the bulls are still in control. This is a positive indication.
#3 Bullish ADX: The ADX indicator shows that the +DI line is currently above the –DI line and the ADX line has started to move up from below –DI and +DI lines. This indicates possible bullishness.
#4 Bullish Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.
#5 Flag Pattern Breakout: The weekly chart shows that the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked on the chart in purple color. Currently, the stock has broken out of the flag. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). The stock is also trading above its 50-week and 200-week SMA. All these are possible bullish indications.
CAT – Weekly Chart
#6 %K above %D: The %K (blue) line of stochastic has currently crossed above the %D (Orange) line in the weekly chart as well. This is a possible bullish indication.
#7 Bullish MACD: The MACD line is above the MACD signal line in the weekly chart, indicating bullishness.
#8 Bullish ADX and DI: The weekly chart shows that the ADX line is moving higher from below the +DI and -DI lines, and the +DI line is above the -DI line. All these are possible bullish indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of CAT above the price of around $229.
TP: Our target prices are $234 and $245 in the next 3-6 months.
SL: To limit risk, place stop-loss at $226. Note that the stop-loss is on a closing basis.
Our target potential upside is 2% to 7% in the next 3 to 6 months.
For a risk of $3.00, our target rewards are $5.00 and $16.00. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers nearly 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the trend channel with a high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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