Caterpillar, $CAT, started a run higher in April 2017 that lasted until a double top in January. It pulled back from there to it 100 day SMA into February and consolidated as the 200 day SMA rose to meet it. It dropped to a lower low in June and consolidated further. In September it started higher and stalled again at prior resistance. This time it fell back hard through a 61.8% retracement of the run up from last April.
It bounced up to that last consolidation and then dropped back to the 61.8% retracement before another move higher has brought it to the recent top and the 50 and 100 day SMA’s. The RSI is running higher with the MACD about to turn positive. A Measured Move gives a target to 145. There is resistance at 136 and 143 then 147 and 151.50 before 159.50. Support lower comes at 131.25 and 122 before 112.75. Short interest is low at 2.3%. The company is expected to report earnings next on January 28th.
The December options chain shows the biggest open interest at the 130 strike with size on the call side also above at 135 and 140 and 145. In January it is spread from 100 to 145 on the put side, centered at 125. On the call side it is bigger and more focused from 135 to 160, biggest at 150 and 160. The February options, covering the earnings report, show biggest open interest at 110 on the put side and 170 on the call side.
Trade Idea 1: Buy the stock on a move over 136 with a stop at 130.
Trade Idea 2: Buy the stock on a move over 136 and add a January 135/120 Put Spread ($5) for protection. Sell a February 150 Call ($3.15) to partially fund the protection.
Trade Idea 3: Buy the January 120/145/160 Call Spread Risk Reversal (90 cents, buy 145/160 Call Spread and sell 120 Puts).
Trade Idea 4: Buy the December/February 145 Call Calendar ($3.50).
After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which with 1 month left in the year sees equities have given up most or all of their gains for the year, but are looking to start December moving higher. Perhaps a Santa Claus rally can repair some of the damage.
Elsewhere look for Gold to consolidate in the short term while Crude Oil pauses in its downtrend. The US Dollar Index is resuming the path higher while US Treasuries bounce in their downtrend. The Shanghai Composite is resuming its path lower while Emerging Markets pause in their downtrend.
Volatility looks to remain elevated but stable, putting light pressure on equities. The equity index ETF’s SPY, IWM and QQQ, all showed great strength on the week and look to continue that into December. On the longer scale the QQQ has the most work to do to reverse the downtrend, while the IWM and SPY have stopped the bleeding for now. Use this information as you prepare for the coming week and trad’em well.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.