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What’s New Peoria CAT? China Woe-Woe-Woes

cat

Double click the chart above for a larger version

Its rare that I agree with CNBC reporters, but today one stated that Caterpillar has become very bad at forecasting their earnings. Today’s earnings report wherein CAT blames the slow economic growth in China for their missing their own earnings forecast leaves me in agreement. And because I have lost faith in their announcements, I will be liquidating our holdings of CAT once we get some price stability.

But, lets look at the chart above so you can see what I see.

First, the stock price is down 2.43% today due to the earnings miss. You can see that the price hasn’t made it all the way back down to that series of lows on the graph in the $79-$80 range, but it appears headed that way from its current $83 and change.

Next, look at the Relative Strength Index at the top (RSI7). According to this measure, it is not even oversold yet, which generally indicates that if the trend has shifted to down, we should see lower prices ahead.

In the Volume section of the chart just below the price graph, you will see a jagged black line that is trending downward – that is the On Balance Volume line and is an indicator of how buying and selling volume reacts to price. In this case you can see that the trend is for sellers to be more active as price falls – a bad sign for the near-term price of this company.

Similarly, the CMF (Chaikin Money Flow) section of the graph below that with shows that the institutional money is flowing out of the stock (see the histogram in the middle that is reading below the mid-point) and the Accumulation/Distribution line is trending down showing more sellers than buyers are bellying up to the bar.

The Full STO graph below that (Full Stochastics) is a short-term trend indicator which shows that we have just moved from Overbought status, and it’s pointing to more selling ahead.

The MACD graph below that (Moving Average Convergence Divergence) is an intermediate trend indicator, and when the black line crosses the red line, it points to a change in intermediate term trend. You can see we are at the crossing point which indicates the trend in this stock’s price is about to move down.

The graph below that shows you how closely CAT’s price has moved in correlation with the S&P 500 Index over the past year. Currently, CAT’s price movement is 88% correlated with the S&P 500 – one way to look at that is to say that 88% of CAT’s price change is caused by the movement of the overall market. Unfortunately for CAT, the other 12% has been down.

And the final section of this chart is a graph of CAT’s price performance over the past 12 months. You can see that over the last year, CAT is up 3.59% even after today’s loss – still better than a Treasury Bond, but not enough to compensate you for a required equity premium for taking on the risk of investing in a stock.

So, I will be a seller of Caterpillar soon. Hopefully we see a bounce in the price tomorrow as (other) suckers who haven’t yet learned the lesson of their poor financial forecasting will take our shares off my hands at a price higher than today’s close.

Lesson learned…


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Mark