The CAT's Meow

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Editor's Note: Sam Collins will be on vacation through June 25. Filling in for him are two other top technical analysts, Chris Johnson and Jon Lewis. 

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%. 

CAT Stock Chart

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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: CAT

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