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Caterpillar Inc. (NYSE:CAT): Weekly Triangle And Daily Bull Trap

 September 26, 2013 10:05 AM

Caterpillar (CAT) has been forming a longer term triangle or compression pattern as seen best on the Weekly Chart, but let's take a look at a Daily Chart Bull Trap and return within the larger pattern boundaries.

For traders, the stock may continue to set up range-based fading trades or an eventual breakout opportunity from this well-defined range.

Here's the Weekly Chart Triangle:

I highlighted the horizontal "Value Area" that has developed within the broader Triangle Price Pattern boundaries.

[Related -Planning a Range Fade or Breakout Trade for Caterpillar CAT]

The "Value Area" region extends from $81.00 per share to $87.50, which happens to be roughly in line with the current triangle pattern boundaries we can use as a reference for planning short-term or intermediate term strategies for trading the stock.

As long as price continues to "bounce" between these boundaries, very short-term traders can continue to play between the price boundaries accordingly.

Do keep in mind that eventually, price will break free of one of these boundaries in a breakout style impulse, which is where the longer-term trader may begin to focus attention or add this stock to a watch-list of future breakout candidates.

[Related -The Best Of Three Tech Shorts]

Here's the pattern as seen on the Daily Chart, along with a recent "Bull Trap" that triggered last week:

We see a clearer picture of short-term trendlines that currently intersect the $86.50 and $82.50 per share boundaries.

Note also that the 200 day simple moving average (SMA) resides into the $87.00 per share boundary for an indicator confluence with price.

Unfortunately for buyers, Caterpillar (CAT) triggered a Bull Trap event last week on the collapse back under the upper trendline at the $87.00 level.

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