{"id":21762,"date":"2024-05-02T07:30:12","date_gmt":"2024-05-02T11:30:12","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=21762"},"modified":"2024-05-02T07:30:12","modified_gmt":"2024-05-02T11:30:12","slug":"whats-next-for-this-bellwether-stock","status":"publish","type":"post","link":"https:\/\/stage.jeffclarktrader.com\/market-minute\/whats-next-for-this-bellwether-stock\/","title":{"rendered":"What\u2019s Next for This Bellwether Stock"},"content":{"rendered":"

Editor’s Note: <\/strong>Today, we’re handing the reins to colleague Larry Benedict – a market wizard and legendary hedge fund manager.<\/p>\n

Up until the start of April, the world’s largest mining and earthmoving equipment manufacturer was on a tear. And then it rolled over…<\/p>\n

Will it go up or down from here? Larry will explain what this bellwether of the global economy could do next, and what it means.<\/p>\n

Here’s Larry…<\/p>\n

\n

Up until the start of April, Caterpillar (CAT)<\/strong> was on a tear.<\/p>\n

CAT is the world’s largest mining and earthmoving equipment manufacturer. And it had rallied a massive 70% from its late October low.<\/p>\n

But after hitting its all-time high, CAT reversed as buying momentum turned lower.<\/p>\n

That down move accelerated last week. CAT’s Q1 revenue narrowly missed consensus estimates, and there was continued weakness in its European market.<\/p>\n

Now CAT is trying to rebound and “fill in the gap.” So let’s see where this bellwether of the global economy could trade from here…<\/p>\n

A Classic Uptrend<\/h2>\n

In the chart below, you can see a classic uptrend in action.<\/p>\n

CAT saw a sharp rally starting in May. Then it retraced from August through October (where it made a higher low).<\/p>\n

CAT’s rally resumed with strong gains through early April this year:<\/p>\n

<\/p>\n

Caterpillar (CAT)<\/strong><\/p>\n

\"Image\"<\/p>\n

Source: eSignal<\/em><\/p>\n

Both bullish legs coincided with the Relative Strength Index (RSI) tracking in its upper band (above the green line).<\/p>\n

The 10-day Moving Average (MA, red line) crossing above the 50-day MA (blue line) confirmed the move. And both MAs tracked higher.<\/p>\n

Note, though, that these patterns reversed when CAT retraced from August to October.<\/p>\n

CAT’s rally from late October started with the RSI rallying from oversold territory (lower grey dashed line).<\/p>\n

This move corresponded with the blue MACD line crossing above and pulling the orange Signal line higher.<\/p>\n

CAT’s rally developed further with the MACD and RSI moving in their upper ranges.<\/p>\n

But as CAT continued to make higher highs (upper orange line), the RSI warned about a potential reversal (lower orange line).<\/p>\n

When momentum steadily falls like this, it will eventually pull the stock lower, too.<\/p>\n

And that is what we saw.<\/p>\n

After locking in its all-time high on April 1 at $382.01, CAT rolled over and headed lower. This reversal happened well before CAT announced its Q1 earnings last week.<\/p>\n

Despite a lift in margins and CAT accumulating swathes of cash, revenue came in slightly less than expected. CAT now expects 2024 sales and revenue forecasts to be similar to last year’s.<\/p>\n

Throw in a weaker European market, and it was enough for shares to gap down.<\/p>\n

Yet now CAT is trying to rally off its recent lows. So what should we expect from here?<\/p>\n

<\/p>\n

\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/p><\/div>\n<\/div>\n

<\/p>\n

Improving Momentum <\/h2>\n

CAT’s gap lower sent the RSI into its lower band (red circle).<\/p>\n

Momentum has slightly improved this past week. But unless the RSI can break back into its upper range and stay there, CAT is still vulnerable to a further fall.<\/p>\n

The two MAs are moving closer together too. So I’ll also watch for the 10-day MA to cross and accelerate below the 50-day MA as additional evidence of a down move.<\/p>\n

Plus, I’ll also be keeping a firm eye on the MACD.<\/p>\n

The MACD line crossed below the Signal line right after CAT’s peak (‘A’). Both then moved lower.<\/p>\n

Most recently, the MACD line has also broken below the zero (0.00) line.<\/p>\n

If this move drags the Signal line lower too, that will add weight to the developing down move.<\/p>\n

Regards,<\/p>\n

Larry Benedict
Editor, Trading With Larry Benedict<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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