A Lesson and Swing Trade Planning from Caterpillar CAT

Mar 17, 2014: 1:03 PM CST

I’ve been covering the price breakout and impulsive trend move up for Caterpillar (CAT) shares.  Recently, shares reached a key price target which gives us a chance to study a quick lesson and plan the next potential swing for this Dow Jones stock.

Let’s start with the Triangle Pattern Target that has been achieved (and slightly exceeded):

CAT Triangle Trendline Price Pattern Trading Price Target

Most price patterns – like Triangles, Head and Shoulders, and Rectangles – have entry triggers and price targets built into the pattern.

In the example of the Symmetrical Triangle pattern (yellow highlight) above, the trigger occurred on the break above the falling trendline in December (roughly 3/4 of the way to the apex or point where the trendlines cross). The projected price target was an equal move of the height ($80 to $90 or roughly $10) added to the breakout price ($86 to project a target of $96).

While it wasn’t a stable or easy ride (few if any price movements are text-book perfect) – note the violent sell-swing in January – shares did ultimately reach (and exceed) their price pattern projection target in February.

Shares have stalled or consolidated – with divergences – into the target level which happens to intersect a key higher timeframe level that overlapped the smaller timeframe price pattern target.

Here’s the Weekly Chart structure and key higher frame target level near $97 per share:

CAT Caterpillar Weekly Chart Higher Timeframe Target Achieved Swing Trade

As I highlighted in the earlier post, the $97 to $98 level was a key higher frame simple price target as shown from the early 2013 and late 2011 rejections (reversals) down against this level.

Note that the two times price broke firmly above this level, it resulted in a straight-up “open air” impulse towards the $105 per share level.

If history is a guide, we’ll continue to monitor the current resistance or inflection level into the $96 to $98 region for any sort of “repeat” play down against this resistance level.

Bulls/buyers will be taking profits (selling) here as aggressive short-sellers/bears put on new positions to take advantage of a potential reversal down.

However, we can’t end our analysis and planning there.  Two times, shares have traded powerfully above this level as short-sellers rushed to buy-back losing positions and funds (traders) added to positions on a breakout.

We’ll use the confluence target as a key pivot or inflection level for bearish/cautious plays beneath and breakout bullish pro-trend strategies above this key reference level.

Study this example of how a lower frame price pattern target intersected (aligned with) a higher frame price level target.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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