Caterpillar CAT Shatters Support: Updating New Trading Levels
Caterpillar (CAT) shares shattered support at the $85.00 per share level on an earnings miss this morning.
Wall Street consensus estimated a gain of $1.55 per share yet the actual reported earnings were $1.35 per share.
Traders subsequently punished the stock with a downside gap and break of a trendline and key support level.
Here’s the Daily Chart, though the Weekly Chart will give a broader perspective with targets:
Shares initially bounced (rallied) up off the $85.00 per share rising trendline level, only to see this morning’s earnings gap collapse price straight toward the $80.00 per share level.
Let’s actually turn our attention – and planning – to the Weekly Chart where we can see the broader picture:
I drew a simple Fibonacci Retracement grid from the 2009 low near $21.70 per share all the way to the $110.60 high into 2012.
Price has traded between the 38.2% Retracement and the high ever since this high.
Notice the key support – highlighted – of the 38.20% level into $80.00 per share.
That’s our major focal point here – shares are bearish as a downside (sell) pathway opens under $80.00.
A simple sell-swing could take price back toward the midpoint or $70.00 per share confluence (target).
Otherwise, be on guard for a vicious Bear Trap which could trigger on an instant return above $80.00.
We’re often charting – and thus trading – price as it moves toward or away from a key level.
For Caterpillar (CAT) shares, this level is simply $80.00 per share.
The next few swing or short-term trades should take place within this context – a movement (trap) up away from $80 or else a breakdown/shatter sell signal under $80.
Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).
Support levels are always vital and can be highly profitable if used properly but at the same time we must be very careful that we have a stop loss because crossing it means it’s into a trend and we don’t want to be on that side. I mostly depend on my broker OctaFX as they have brilliant analysis service that is provided by highly qualified team of experts so they almost are invincible but still I also have money management in place in every trade.
This can be a really good trade to go at but we should make sure we don’t do anything silly or it can be seriously risky. I am trading with OctaFX broker and with them, I get great analysis update daily while I can even see what top traders are doing through the platform available on their web site, it makes trading easier but of course I focus on currency pairs mainly instead of stock since that way I don’t have to invest too much and still gain quite a lot.