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Fan Yang

Caterpillar Inc. (CAT) - The Bullish Continuation Case

In September, we noticed a bullish breakout in shares of Caterpillar $CAT

Caterpillar Inc. (CAT) in a Bullish Continuation Breakout

This breakout signaled a bullish continuation, but there was a key resistance pivot at $161.50 that presented the first challenge. Price retreated after approaching the $160 handle.

CAT Daily Chart

(click to enlarge)

Wedge Breakout and Pullback:
- The daily chart shows a market that was bullish entering 2018. 
- Then, price developed a falling wedge until the September bullish breakout.
- The current pullback was exacerbated by the overall market downturn in the past couple of weeks. 
- So, we are seeing a deep pullback. But does deep pullback invalidate the bullish outlook?
Still Bullish:
- The breakout from the wedge is in question. 
- BUT, also note the consolidation between July and September. 
- Price is still respecting that consolidation as a base right now. 
- A hold above $140 should be a positive sign for the bullish outlook.
- A break below $137.40 on the other hand would be a strong signal that the market has reverted back to the bearish correction mode. This would open up the $130 area. 
- Meanwhile, if we do see a bullish attempt, the $150-$152.50 area will be potential resistance in the short-term.
- A break and hold above $150 would be a strong signal for the bullish outlook. 
- For now, I am cautiously bullish on CAT, but might change my mind if price falls below $140, and then below $137.40. 

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