Caterpillar Forms Infamous Bearish 'Death Cross' Pattern

rollandthomas (74)in #money • 6 years ago

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for construction, resource, and energy and transportation industries

This past week, the chart of Caterpillar formed the infamous death cross pattern.

The death cross can occur in individual stocks, within various funds, and when examining indices and averages. Considered a bearish signal within the market, a death cross occurs when the short-term, 50-day moving average, also called a price trend, crosses below the long-term, 200-day moving average. It is named a death cross due to the X shape it makes when the trend is charted and is often considered a sign of further losses for a particular stock.

Source

The cause of the death cross is due to the continued trade wars and the tariffs on steel and aluminum which is hurting Caterpillar’s ability to compete with other manufacturers. Caterpillar’s death cross comes about three weeks after the stock entered a bear market, a decline of at least 20% from a bull-market high.
The recent death cross ends a 566-session streak when the 50-day moving average (MA) was above the 200-day moving average (MA) back in April 2016.

So is this the beginning of the end for Caterpillar, lets go to the charts.

Monthly Chart (Curve Timeframe) – monthly supply is at $165 and monthly demand is at $115

Weekly Chart (Trend Timeframe) – the trend has been sideways since February, but price is within a weekly demand zone at $135.

The chart suggests the opportunity to buy already passed when price penetrated to the bottom of the weekly demand at $135. Price bounced, but there wasn’t any follow through as this indicated by this past week’s red candle.

Based on the death cross, the chart suggest to trade Caterpillar to the downside once price breaches the weekly demand zone at $135, then pulls back.

Caterpillar is actually one of the stocks on my stock short list. I think Caterpillar is going to go down long term to my target of $50 within 2-3 years.