Stock of the Day (2/16/2021)- CAT Cup and Handle

stock chart of CAT

The Stock of the Day for Stock Tavern is Caterpillar (CAT). Caterpillar is a leading manufacturer of construction and mining equipment. Most people will be very familiar with their yellow and black CAT equipment. They have been operating since 1925 and continue to be a world leader in the sector. Today we answer, “Should I buy CAT?”

Chart Formation

CAT is currently in the handle portion of a cup and handle similar to previous SOTD Arcimoto (FUV), and very close to a buy point. On January 13th 2021, CAT high a new high of $200.17 before free-falling to $180.63 on January 27th. Since then, CAT can climbed its way back up on strong accumulation volume.

February 2nd showed significant progress towards the uptrend in CAT, posting high daily volume and gaining 4.21% in value in one day. The stock of the day then continued upward, but met some resistance close the its previous high.

At CAT’s current position, it moves sideways along the handle of the cup waiting for a breakout. Keep your eyes on this stock’s movement. If CAT is able to break out passed the $200.27 (10 cents above the previous high) mark, the buy signal flashes. The buy zone would be approximately between $200.27 and $210.28 (5% within the buy point).

Close-up of Cup and Handle – CAT

Strengths

  • The downtrend in the first half of the cup and handle was on low volume. Generally, you always want the down days of your potential buys to be on lower volume than the up days.
  • After CAT stock started its uptrend in the middle of the cup, it was followed up with a heavy volume day. On February 2nd, heavy volume bolstered the price higher.
  • The uptrend has occurred after an earnings call which happened January 29th. The change in sentiment of investors appears to be a result of new bullish information.

Weaknesses

Should I Buy CAT?

The current chart pattern certainly paints a good picture for CAT. The stock has developed a proper cup and handle and awaits breakout. Some investors like to get in during the handle to try to maximize potential profits. The proper buy zone is currently $200.27, and that would be the true time to get into the stock, especially if it breaks out on heavy volume.

Handles can be tricky and tend to fall downwards before the ultimate push through the buy point. If investors want to get in early before a confirmed breakout, they need to be able to stomach a potential decrease in price first. Always be sure to set stop losses to ensure a failed breakout doesn’t hit your account too hard.

As always, Stock Tavern is not suggesting you buy or sell this stock, and this analysis should not be taken as financial advice. Always do your research and make your own decisions, we all have different risk profiles and therefore no trade is right for everyone.

Disclosure: Stock Tavern has no current position in CAT

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