Is Caterpillar Setting up for a Break Out?

Published on Wednesday, 21 July 2010 19:04 Written by Christian Paolinetti

New York, July 21st (TradersHuddle.com) - Shares of Caterpillar, Inc. (NYSE:CAT) closed the trading session at $66.87 placing the price action in a very tight range, given that calculated support is set at $63.56 and the calculated resistance based on an algorithm of peaks and troughs is set at $67.37

Caterpillar Inc. designs, manufactures, and markets construction, mining, agricultural, and forestry equipment. The Company also manufactures engines and other related parts for its equipment, and offers financing and insurance. Caterpillar, the largest earth moving equipment maker in the world, distributes its products through a worldwide organization of dealers. The maker of bulldozers and excavators was founded in 1925 and headquartered in Peoria, IL.

Caterpillar's stock price action indicates that both sellers and buyers are materializing very close to each other, which is indicative to a momentum building area, as the stock can resolve by breaking out of the tight range that developed.

Traders wanting to establish a position should place close attention to Caterpillar's price action, as any movement outside its predefined range of $63.56 and $67.37 could grab the attention of momentum buyers, looking for a big movement in the price of the stock. Traders need to be aware that tight range resolution works both ways, hence, a move below support at $63.56 could spark above average selling. A tiered approach can be a good way to approach starting a position in Caterpillar's, by establishing a starter position while the stock is in the tight range, and then adding to the position as it breaks and closes above resistance.