Thursday, 1 June 2017

CAT - implications for the main market

Caterpillar (CAT) started the month on a fractionally positive note, settling +0.2% at $105.65. The May settlement >$100 confirmed the hyper-bullish April close of $102.26. Technically, $100 is now core support, and by default, further upside of 25/30% looks probable before this has 'all played out'.

CAT, daily

CAT, monthly


I've little to add on the actual company. The aim of this post is not really about CAT, but the implications for the broader market.

Lets start from the unquestionable technical premise that $100 was multi-year resistance. We saw CAT fail to clear it in 2014, and the stock was then effectively cut in half, as commodities broadly imploded into early 2016.

CAT then clawed back upward to Jan'2017, when once again it got stuck in the $98s, with a few months of chop.

A massively key event then occurred in April, a break through of $100, and it held into end month. May has confirmed April's close.

$100 is now core support. The break above $100 offers a very basic $10 of upside to $110. More broadly, if you assume that $100 will hold in the next major market fall of 30%, then CAT has to least climb to $130, in order that $100 is not broken in the next down wave.

Even if you assume the gains in the main market/Dow will only be half of those of CAT, we're looking at around 15% of main market upside.