Caterpillar Stock Flashing 2 Warning Signs

Caterpilar stock has run up to a historically bearish trendline

Managing Editor
Sep 12, 2019 at 11:43 AM
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Trade-sensitive Dow stock Caterpillar Inc. (NYSE:CAT) is up 10% in September, as talks between the U.S. and China take a positive turn. Today though, Wells Fargo dumped cold water on CAT's rally with a downgrade, sending the shares 1% lower, to trade at $131.89.  And if that's not enough, the machinery stock is fresh off an encounter with a historically bearish trendline.

Yesterday, Caterpillar stock ran right up to resistance at its 320-day moving average, after a lengthy stretch below it, defined for this study as having traded south of the moving average 60% of the time in the past two months, and in eight of the last 10 trading days. There have been five similar encounters with this moving average in the last three years, after which CAT was lower 10 days later by 6.4%, on average, per data from Schaeffer's Senior Quantitative Analyst Rocky White, with all five of the returns negative.

Daily Stock Chart CAT

From its current perch, another 6.4% pullback would put the stock back below its year-to-date breakeven level. It's also worth noting that CAT's 14-day Relative Strength Index (RSI) is running hot, coming in at 69 even before today, a second sign that the shares could be due for a short-term breather at the very least.

Considering this, now might be the time to speculate on Caterpillar's next move with options. The equity's Schaeffer's Volatility Index (SVI) of 24% is in the 14th percentile of its annual range. This means near-term options are currently pricing in relatively low volatility expectations. Plus, the security sports a Schaeffer's Volatility Scorecard (SVS) of 86 (out of a possible 100), meaning the security had handily exceeded options traders' volatility expectations during the past year.


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