Caterpillar, $CAT, started moving higher in April last year. It had several pauses along the way to a top in January. It pulled back to the 100 day SMA at first, and bounced, creating a support area to consolidate over. This was also a 38.2% retracement of the move higher. The 200 day SMA came up to touch price in May and it has risen ever since. A stall and shallow pullback at the 100 day SMA saw a quick reversal and now price is back at that interim top.
The RSI is into the bullish zone and moving higher while the MACD is rising and positive, both giving rise to the idea that a reversal out of consolidation is underway. There is resistance at 157.20 and 160 followed by 164.50 and 169 then 173.25. Support lower comes at 152 and 145 followed by 139.50. Short interest is low at 1.6% and the company is expected to report earnings next on July 30th.
The June options chain shows the largest open interest at the 145 strike on the put side, while it is biggest at the 160 strike on the call side. The July chain shows open interest building from 125 up to 160 on the put side and much tighter, from 150 to 160 on the call side. The August chain, the first capturing the next earnings report, shows a flat curve from 120 to 160, biggest at 145, on the put side. The August calls show equal open interest from 150 to 175. The at-the-money straddle in August suggests traders pricing in a $15.50 move in the stock price by then.
Trade Idea 1: Buy the stock on a move over 158 with a stop at 154.
Trade Idea 2: Buy the stock on a move over 158 and add a June 155/150 Put Spread ($1.80) for protection, selling a July 170 Call ($1.21) to fund most of the protection.
Trade Idea 3: Buy the June 1 Expiry/August 160 Call Calendar ($4.75). As the June 1 Expiry Calls expire, look to sell additional weekly or monthly calls against the August position.
Trade Idea 4: Buy the July 140/160/170 Call Spread Risk Reversal ($1.55).
Elsewhere look for Gold to continue its move lower while Crude Oil continues in an uptrend. The US Dollar Index also looks to continue to move higher while US Treasuries trend lower. The Shanghai Composite looks to continue to bounce off of support and Emerging Markets remain in consolidation building there bull flag.
Volatility looks to remain at very low levels keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts are mixed though. All look strong on the weekly timeframe. And the IWM is leading to the upside making new all-time highs. The SPY and QQQ are in consolidation short term though with the QQQ looking the weaker of the two. 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.