CAT Update

Here is the original CAT Trade IDea, this is a long term trade idea based on a local H&S top and a bigger probable double top stretching back to May 2011.

Here's an update for CAT, which looks like it may set up a nice low risk trade that comes to us. I had already started a position there based on our last analysis of CAT, but since the trend in CAT looks a bit different, I would like to add to this position, not because of CAT's Beta of 2.01 which is nice, but because of what I view as a longer term double top and the potential there.

 a 5 day chart of what looks to be a double top. The price pattern implied target would be somewhere around $30-$40, although this would take some time. You can make more than 100% on a short (a limited gain of 100% if the stock goes to zero is one of the arguments made against short selling, however in this article from Trade-Guild.net, I show you how you can make more than 100% in a short trade).

 The weekly Money Stream Chart shows the second top as being hugely negatively divergent, this is what we'd expect to see in a double top.

 The weekly 3C chart shows the same.

 At first CAT looked like a H&S top may form, since it has trended don in a clear channel, note the RSI divergences.

 On a volatility shakeout move (letting the trade come to us), there would need to be a convincing break of the channel to the upside, these are some of my favorite trades as they come to you, allows excellent positioning and have minimal risk. They also tend to fail spectacularly.

 The 1 min chart shows CAT seeing some profit taking, probably retail, as it nears the upper channel where traders expect to see resistance and a failure in CAT. This still isn't a bad place to short CAT, I just think it's probable that we can get better positioning and timing.

 The 2 min chart is in line with price, this would suggest that there' nothing serious standing in the way of CAT breaking above the channel.

 We see the same confirmation on the 5 min chart as well as a large relative positive divergence. I don't think this positive divergence would have been accumulated for a simple test and failure of channel resistance.

At 15 mins we see CAT is in a relative negative divergence. The longer the timeframe, the more significant. So on a 5 min we have a positive divergence that seems to be there to put in a head fake breakout through the channel, longer term there's a negative divergence showing this is not true strength in CAT, but most likely the head fake move I'm looking for.

At 60 mins, CAT has consistently seen negative divergences at the countertrend reaction moves, this one is no different.

I'll be setting price alerts for a move above $109.80/$110, this is about where a breakout of the channel would occur, it is not my target to short, but an indication that CAT is looking to make that head fake move that I do want to short in to. First we need the breakout, second we need to see the short term charts all go negative, showing distribution in to the breakout and a head fake move, that is where I want to add to CAT, but I'm happy to have a position started in CAT, I left plenty of room to add to it.