Trade of the Day: Caterpillar (CAT)

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Today, we are opening a new bearish trade on Caterpillar (NYSE:CAT). CAT has been caught in the crosshairs of the escalating trade tensions between the United States and China. The company has been hit not only by the rising cost of steel but also by the potential decline in sales the company may experience in China if the trade war continues.

Even though the company is still poised to post strong revenue and earnings on July 30, before market open, when it releases its next quarterly numbers, investors are worried CAT’s best quarters may be behind it. This is bad news for the company’s stock because Wall Street cares much less about what the company has done in the past than it cares about what the company could potentially do for investors in the future. For the moment, growth prospects at CAT look grim.

The stock recently broke below the down-trending support level that had been interacting with the stock since early February, and it appears that Wednesday’s retest of that former support level has confirmed that it will now be holding up as a strong resistance level. We expect the stock to continue falling, eventually filling the gap that was formed as the stock moved higher in late October 2017.

This bearish movement, combined with an anticipated increase in implied volatility levels in the run up to the company’s earnings announcement at the end of next month should provide solid gains in the option premium.

Buy to open the CAT August 17th $130 Put (CAT180817P00130000) for a maximum price of $4.30.

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InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.


Article printed from InvestorPlace Media, https://investorplace.com/2018/06/trade-of-the-day-caterpillar-cat-5/.

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