Caterpillar Inc. (NYSE:CAT) Is Expected To Remain In The Range Of $78-$91

Denver, CO, 07/25/2013 (Avauncer.com) – Caterpillar Inc. (NYSE:CAT) (Closed: $83.44, Down: 2.43%) disappointed the market when it announced its second quarter result yesterday. The fall of 16% in revenue and 43% in net profit brought a sharp selloff with a volume of 16.5 million, much higher than the average of 6 million. It tried to recover the intraday loss in the middle part of the session but later gave all the gains from the low. The general market declined too on the words of the management which don’t see a growth higher than 2% this year.

The 2008 selloff was very sharp but the stock bounced with equal vigor in 2009 & 2010 from the March 2009 bottom of $21.71. It reached $116.5 by May 2011 and after a few months’ correction, rose again to make a Double Top at $116.95 in February 2012. A failure to go beyond $117 dragged the price to $78.25 by July 2012. Since then the price is stuck in this range and hasn’t created any higher highs or lower lows. The bounce from $78 faltered at $99.70 by February 2013 and the subsequent fall created a Head & Shoulders pattern. This pattern is usually a reversal pattern but on a few occasions, has acted as a continuation pattern too. As long as the neckline, currently at $78.50, is not broken convincingly, the bears can’t hope for much. If the pattern is successful then the price can drop to $58 - $59 levels after any breakdown.

The price is expected to remain in the range of $78 - $91 for a few more weeks. Four more weeks after this will bring a temporal symmetry and that would be the time we could watch out for a probable breakout from this range. At $82.64, the low of the last session, a simple corrective has reached equality for the two legs. So we can expect a bounce if $82.64 holds, otherwise a move to $79.50 - $81.5 would be on the cards.