Are you bullish or bearish on Caterpillar (CAT)? (May 20, 2014)
CAT
The stock that’s on my radar today is Caterpillar ( NYSE:CAT ), you can see what happened. The company announced their earnings, their sales, globally, a 13 percent decline, basically all of their numbers were kind of ugly. The one thing that jumped out at me was February 2010, and that is the date when there was last a decline of this magnitude, so I’m looking back here in the first quarter of 2010. I don’t know when they announced back then, but it was on their earnings announcement in April, which would probably be the case, April 2010. So what happens to this stock? The stock goes down 22 percent before it ultimately starts moving higher again, so that is from the high here.
Now let’s look here where Caterpillar ( NYSE:CAT ) is, and don’t get the wrong idea, I’m not saying I’m really, really bullish on Caterpillar ( NYSE:CAT ) I’m just looking at the chart. So let’s go down 22 percent, that’s about here, if a similar thing happened this stock could fall right back to this congestion phase from 2013. If we got the same kind of sell-off, I don’t know if that is going to happen, I kind of don’t think so but we’ll see, but that’s really the analysis here for me, if we get the same kind of magnitude decline as we did in 2010, and let’s go from high to low, yes, 22 percent on this wherein the stock starts moving higher; if we get the same magnitude then this stock from the top, not where it is now, the stock from the top down 22 percent will pull right back into this support, so let’s see how we can trade that.
Okay, 86.00, 87.00 on the top, 87.00, 82.00, so the mid-eighties, how about that. Looking at this here, the 50-day moving average, so I’m looking at this, this is basically where support is, the 200-day moving average is above that level, so here is the way I would analyze Caterpillar ( NYSE:CAT ); the first thing that jumps out at me on this chart is this, we get a big sell off to the 50-day moving average, the stock jumps up again. Sure this is in response to Q4 earnings, but this stock was just getting out of a base. Now, if we’re looking at this stock from the low, the December low, up to the high, the stock is up 30 percent, a little over 30 percent, that’s from the low to high. We could see some profit taking; I think I read it was up 15 percent at the first of the year, something like that. So the stock is still up for the year, but think about it, don’t you love it when people say that, like on CNBC, the stocks down 38 percent just today, but it’s still up 5 percent for the year, and I’m thinking, how many people are taking solace in that, how many people actually owned the stock from the beginning of the year and they’re going, “Oh boy, I’m still up 5 percent”.
The bottom line is this thing got crushed, 3.6 percent today, and from the top it’s down a lot more than that. Here’s the thing, I’m looking at Caterpillar ( NYSE:CAT ), I can’t be bearish on Caterpillar ( NYSE:CAT ). You look at this and are you bearish or are you looking at this and saying, “Oh my god, this thing is going to zero, look at that decline, I’ll bet it goes to 80.00.” You can do that, I’m looking at this and I’m seeing something entirely different, you see I’m not looking at this, I’m not looking at that, what I’m looking at is this; I’m looking at what has already occurred, and I see this, this pull back that lead to a rally, I see this big massive puke, it’s like a total puke fest, big massive volume, I see a pull back to the 50-day moving average, I see a buying opportunity, but I also see a lot of heaviness.
I’m looking at this and I think the stock has hit an all time high or maybe it was just a 52-week high, but I see a buying opportunity at the 50-day moving average, like we got here, I see a lot of heaviness, meaning this stock isn’t going to do that. Jim Chanos had been talking about Caterpillar ( NYSE:CAT ) for basically all of this year anyway, he thought that the market was getting it wrong, that their global sales were slowing, etcetera, etcetera, and that’s exactly what happened. So we could have a lot of funds, decide well maybe that Chanos guy, maybe there’s a reason that he’s running more than half a million dollars, and so you could get more shorts leaning on this stock, I don’t know.
But as I see it technically, this is a buying opportunity though on a really heavy stock, on a really heavy stock. So the way you take this trade is, you look at the low of 100.52, so for my purposes, $100.00, it’s at 101.56. You can buy this stock with a stop at around $99.50, something like that, you’re risking a very small amount of money, because you’ve got to have a stop in, otherwise the stock goes down here and it goes down here, and are you going to sell it, no, because you’ve lost too much money. Now you’re looking at the 200-day moving average and you’ll sell it when it bounces there and you’ll never trade again like this. The stock doesn’t bounce, it keeps going down and now you’re thinking about Dan’s 84.00, 85.00 and it’s just too much, now you’ve lost like 20 percent and you don’t know what to do except you’re really ticked at me, so we’re not going to do that.
I’m saying you risk a little bit of money if you want to buy this stock right now, but you’re not expecting $6.00, $8.00 $10.00 from this thing, you’re expecting a little bit of money but the uptrend is clear. Nobody that I would care to listen to, and that list is short anyway, nobody who looks at charts would look at this and say the uptrend is broken, sorry, it’s not; the uptrend is intact. However, this is a problem, this is why I was saying at the outset here the one stock that got my attention was Caterpillar ( NYSE:CAT ). So the thing with this is, this so far is a buying opportunity, this is what you’ve got to look at, again, you key on the low here of 172.00, we’ll just say $100.00, you key on the low of $100.00. What often happens with a stock like this is, after this kind of shellacking the stock will actually gap down, it will actually gap below this low here and then wind up moving higher, so I can see that happening.
The bottom line is this, this is giving you a buying opportunity for a trade, but you have to understand that as an investment, if you’ve got a longer-term investing thesis maybe you buy a little bit of stock here, but if you have a longer-term investing thesis why do you even have to buy a little stock here, because you’ve got potential for more downside. What I would suggest doing is, look at Caterpillar ( NYSE:CAT ) tomorrow as maybe a little trade on a counter trend bounce, realize that it’s heavy, but realize that this kind of sell off on a Dow component is not likely to go for another day. If this does fall further tomorrow buy it at the close. You can thank me for that later. If it falls again tomorrow, if it closes like way down again tomorrow buy it at the close and then send a nice thank you note.
Free Chart