CAT Trade Idea

As you might recall, CAT was a core short position in the equities model portfolio entered at $107.67 and covered/closed on September 5th at $82.47 for a 23+% gain in a non-leveraged large cap. The reason CAT was closed... some leading positive divergences.

Looking at CAT now, it looks like it might just be a nice short position again and if all goes well, on our terms.

Here's what I'm looking at and looking for...

 Cat closed on the 5th on a positive divergence, recently CAT has gone negative and deeply leading negative on a 60 min chart, this is quite a strong signal.

 There aren't much in the way of positive divergences, but we do have at least a 3 min intraday positive divergence, this isn't the kind of QE3 accumulation one might expect to see if price was being brought down to accumulate for a QE3 rally, but it may be enough to get CAT to a better price point with higher probabilities and lower risk-LET THE TRADE COME TO YOU.

*NOTE THE HEAD FAKE POP IN THE YELLOW BOX.

CAT has somewhat of an island top here, I'm thinking a move to at least the first gap is reasonable, if we get a move to the higher one, even better so long as CAT goes negative on any bounce and with a 60 min chart looking that bad (one of the worst I've seen recently), I feel pretty confident we'll see negative divergences in to any short term price strength.

Here's the daily of CAT...

CAT shorted at the red box, covered at the white box. It looks to me like the yellow trend was a counter-trend rally in an overall bearish trend, while we may see some short term upside volatility around the gaps, from the looks of that 60 min chart, I'd expect CAT to make a new low as it resumes a downtrend.

In any case, the stop would be very close to the entry, I doubt there'd be much more than 4 points of risk in the worst case scenario.