Just last week it looked like Caterpillar (CAT) had broken above the rim line of a bullish cup and handle pattern. The pattern projected an upside price objective that targeted a new all-time high.
It was a very strong looking chart and all the technical indicators were tracking higher.
The MacD momentum indicator had made a bullish crossover and the accumulation/distribution line was tracking higher and above its signal average. A double bottom was in place and the stock had moved over its 50 day moving average.
But it was a false breakout.
Instead of heading to new highs, Caterpillar shares quickly reversed direction and dropped back down to their double bottom low in the $145 area.
Early in Monday’s session, CAT first tested the double bottom low and then reversed direction with the broadly stronger market. Shares finished the day up 3.25%, closing near the highs, and forming a large bullish engulfing candle. Now there is a potential triple bottom on the chart.
It will take a few days to sort this volatile price action out. First the triple bottom will have to be confirmed, and ultimately, for Caterpillar to return to trend, that zone of resistance between the $164.50 and $160 levels will have to be taken out.
Caterpillar is currently up one percent in the pre-market at $152.75