Caterpillar Inc. (NYSE: CAT) — We talked yesterday about crossovers of moving averages as proven technical indicators. We gave you Novellus Systems, Inc. (NASDAQ: NVLS), which was in a long-term uptrend, and a bullish crossover of its 20-day and 50-day moving averages.
Today, we’re going to look more short term, using a bullish cross of the 10-day moving average over the 20-day. Since such crossovers often indicate the beginning of an uptrend, they provide an excellent entry point for a bullish play.
Caterpillar has been on a solid run for the past couple of weeks (even with yesterday’s pullback). The shares used the $55 level (a strike with heavy put open interest) as a foundation for the rally that covered 24% using Monday’s high at $68.35.
The rally has caused CAT’s 10-day and 20-day moving averages to bullishly cross for the first time since mid-February.
Note in the chart below how the previous cross came at the beginning of a two-month rally that covered more than 40%.
The stock may pull back some more after yesterday’s decline, but that’s OK. The shares showed some weakness in February after the cross. Stick with it, and let the intermediate-term uptrend play out. Look for a return to at least the $70-$71 area, the site of the April high.
Double Your Money on the Rumor AND the News
Learn how to cut through the rumor and manipulation surrounding corporate earnings announcements and bank money-doubling option trades all year long. Download our FREE trading guide here.
