Just a little refresher on CAT, there are a few previous blogs as well.
We prefer the B-wave idea as it is more in accordance with the rest of the markets, but it really does not make a lot of difference for the next move as both lead to new lows ultimately. The B-wave has the advantage that it provides a very well defined first initial target, namely the level of the B-wave within the larger B-wave, about $53 or so. That also coincides with a 62% retracement of the rally from the lows of March 2009. Given the speed of the drop so far, we could be at those lows in about 4/5 months. Here is the detail;
Given the proportions of the waves from $115 , I am pretty certain that we have done a wave 1,2 and 3 and are now in 4. (This could be wrong and the whole first wave is already complete, see blue alternative). Given that 3 in this count is about twice the size of 1 it is essentially a more elegant count. Assuming this is correct than we would expect alternation between 2 and 4, as 2 is a zig-zag 4 should be a sideways move, either a flat or a triangle. So you should get at least a,b and c and perhaps (if a triangle) d and e. Consequently it may be worth waiting a little to see that you do get a, b and c as the stock will not change much in value and you avoid the risk of it going higher. The 4th wave is at around $94, and this is also where overlap would occur, negating this count in favor of the alternative. Once the flat or triangle is complete wave 5 should take the stock close to the target of $53 to complete wave 1. That is where you could get the $30-$40 rebound before the bear market resumes.
If, and I do not think so, the alternate is correct, that is wave 1 is already complete than wave 2 would retrace about 1/2 to 2/3 so $95 to $105 is possible Waves 2 are usually zig-zags so this should happen fairly fast.
CAT
This was back in June. We had called the peak a few months earlier and the stock had completed wave 1 down and wave 2 up. It was around $105 just shy of a 62% retracement and a 4th wave of previous degree. Here it is now;
As anticipated, it did go a little higher but then dutifully started wave 3 down. It has lost 27% in wave 3 alone. Longer term the target is much , much lower at $60 or so;
CAT
Both charts superficially look alike. Both have very distinct B-waves , I think. Caterpillar, the one on the left, far exceeded its old highs primarily as a result of being the beneficiary of a lot of digging going on in mining and construction. Honeywell, on the right, did not do quite as well but did manage to, more or less, equal the old high (double-topping), and, hitting the underside of the previous channel.
Today both reported earnings, CAT was better by 44% and HON by 40%, and quite obviously both stocks traded down, CAT by as much as $7. It is not that CAT did not meet or exceed expectations, they almost all do. It is just that the CEO said a few things about China and the US administration that the market misunderstood or simple did not like. Earnings over the long haul are obviously important but in an environment where even large corporations go from shutting down to overtime in very short periods and where costs of capital are artificially reduced to zero and where productivity goes through the roof due to previous firings only to crash again due to exhaustion, it does not make a lot of sense to pay attention to. If these are B-waves, both stocks will go down regardless of earnings.
CAT, HON
Earlier this month we anticipated that Cat. might peak (see chart on left). It did and fell $22 during the month. More importantly the pattern is easily counted as a wave 1 , followed by a corrective wave 2, which may, or may not be quite over. Next big move should be down inthe order of $36 and possible more.
CAT
Toromont Industries Ltd. is involved in renting and selling heavy construction equipment. Like Finning they distribute a lot of Caterpillar equipment.
The B-wave here is clear as a bell as well. Again an error is always possible but that would then probable be because we are in a wedge formation that will, but has not yet, complete the entire 5-wave sequence in much the same way as wave 5 of 3 is also a wedge. Should that happen then the stock would climb only a few more dollars at the most and basically kill time. Therefore a prudent investor would sell now.
Assuming that there might be some correlation between this stock and the manufacturer of much of it’s equipment , Caterpillar might confirm this outlook. Here is the latest Cat. chart, what bear market?? one might wonder;
CAT, TIH
Who would have thought that the diesel engine, first invented by Rudolph Diesel back in 1892, would become the subject of the “new normal” stock market poster child stocks like CMI, but also CAT, which is a few dollars away from double topping.
From here anything can , of course , happen but, applying the “buy low, sell high” philosophy it is patently obvious that this is not the time to buy, ergo it must be time to sell. A few other reasons to do this are that the stocks P/E is at a lofty 22, the MACD and RSI have turned down and are not conforming and , last but not least, CAT is close to a double top. Afew dollars to the upside is still possible so you may just want to wait a few days (the upper trend-line is around $93) but you do risk missing the proverbial boat.
CAT, CMI
On Feb . 18 I opined that cat should drop to about $26 and then rise back to $47 or so. Similar comments were made with regard to DE and Canadian Western Bank, the one that finances all things yellow that smell of diesel. Here is the chart for CAT.
The analysis was fairly easy as the down-turn from 90 was entirely anticipated and the following 5-waves clear as a bell. The stock went a little deeper than expected hitting about $22. Anyway had you bought at the 26 level you would be ahead by about 14 or almost 50%. I would sell here, leaving some on the table for the next guy. CWB not quite as spectacular but did almost do our usual 30% (11 to 14). DE went from a low of $25 to about $45 and should be exited as well. CMI might still go a little further, no entry level was ever given, only timing, it too is up at least 30%.
CAT, CMI, CWB, DE
A little while ago I recommended getting out of Cat if you owned it and suggested a target of about $26. We hit $24.15 today and this could now count as a completed 5 wave down. If short I would by it back here, going long might not be bad either but I would do so with options.
CAT
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