Caterpillar’s Weekly Triangle and Daily Bull Trap

Sep 25, 2013: 10:17 PM CST

Caterpillar (CAT) has been forming a longer term triangle or compression pattern as seen best on the Weekly Chart, but let’s take a look at a Daily Chart Bull Trap and return within the larger pattern boundaries.

For traders, the stock may continue to set up range-based fading trades or an eventual breakout opportunity from this well-defined range.

Here’s the Weekly Chart Triangle:

Caterpillar Inc CAT Technical Analysis Weekly Chart Triangle Pattern Range Breakout

I highlighted the horizontal “Value Area” that has developed within the broader Triangle Price Pattern boundaries.

The “Value Area” region extends from $81.00 per share to $87.50, which happens to be roughly in line with the current triangle pattern boundaries we can use as a reference for planning short-term or intermediate term strategies for trading the stock.

As long as price continues to “bounce” between these boundaries, very short-term traders can continue to play between the price boundaries accordingly.

Do keep in mind that eventually, price will break free of one of these boundaries in a breakout style impulse, which is where the longer-term trader may begin to focus attention or add this stock to a watch-list of future breakout candidates.

Here’s the pattern as seen on the Daily Chart, along with a recent “Bull Trap” that triggered last week:

Caterpillar Inc CAT stock Daily Chart triangle rectangle price pattern bull trap fade trade range trading tactics breakout

We see a clearer picture of short-term trendlines that currently intersect the $86.50 and $82.50 per share boundaries.

Note also that the 200 day simple moving average (SMA) resides into the $87.00 per share boundary for an indicator confluence with price.

Unfortunately for buyers, Caterpillar (CAT) triggered a Bull Trap event last week on the collapse back under the upper trendline at the $87.00 level.

See the prior updates for additional insights and trading tactics for Bull Trap Outcomes:

Lessons from the August SP500 Bull Trap

Quick Lessons from Three Bull Trap Outcomes

For now, continue to focus on the alignment of the Weekly and Daily trendlines as we juggle the ongoing trading range (triangle) pattern with the likely future breakout of this well-defined compressing range.

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Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new 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).

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Comments
  • agnnis bingamin

    feels good to have this blog great learning thanks.

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