Caterpillar Corrects, But Remains Bullish Longer Term

As you would expect, the recent market correction in all major equity markets, and in particular for the US indices, has broadly been reflected in the price action for individual stocks. This is not to say all boats rise and fall with the tide, but following such a dramatic and savage reversal, it is no surprise to see leading blue chip stocks reverse off their recent trends of which Caterpillar (CAT) is a good example.

This is a stock I have mentioned several times before, and is one I suggested was likely to do well in the event of a Trump win. At the time the stock price was trading at the volume point of control in the $85 region, and since then the price has risen steadily to currently close this week at $156.29 on the monthly chart.

On this chart, accumulation is clearly in evidence in January 2016 with a narrow spread down candle on high volume, with the upwards trend then developing, and further buying appearing in March 2017 as the stock paused before accelerating and moving firmly higher for the remainder of 2017. Note however, how the volume on the monthly chart is gently declining, and it is interesting to note the volume in December 2017 looks to be lightweight, given the wide spread up candle it is associated with.

It was no surprise therefore to see the January 2018 candle develop, which was the warning signal of a reversal ahead, with a deep wick to the upper body of the candle and high volume, a classic relationship, and interesting as a precursor to the dramatic correction that duly followed in early February. Since then, the stock has recovered with the deep wick to the lower body of the candle. Provided the principal indices continue to recover with the NQ emini leading the way, we can expect to see stocks such as Caterpillar recover, and pick up the bullish trend once more.