CAT: looking for a possible repeat of 2008.

There are some similarities in CAT to the present time and what happened in 2008 that I want to point out. This stock looks ready for a sharp fall and patient traders may be able to take advantage of this, especially if price sensitive.

*As you can see by the large green dashed line below, in 2007/2008 CAT made a large double top just like it did in the 2011/2012 period.
*Then, after breaking below its 200day moving average (yellow line) it wasn't long before the 50day moving average crossed below the 100day moving average as highlighted by the red circle.
*Lastly, the stock consolidated sideways below its 200day moving average for approximately 3 months (as in the red box) before falling aggressively in the meltdown of 2008.

It seems to me that CAT is setting up for another fall, although probably not as severe as the beating it took in 2008. This consolidation below the 200day moving average is sucking in longs that believe the stock is oversold and or undervalued. I think action this presents a good opportunity to play the stock from the short side anywhere from here near $90 up to the 200day moving average near $96. That gives the patient short seller (or put buyer) enough wiggle room to look for good prices on weak bounces. Additionally, aggressive traders can also short if the stock makes a new lower low below the bottom of the red box.

Anyone who plays this stock for a fall will likely use a high volume close over the 200day moving average as a prudent stop. Always know your risk BEFORE you enter a trade. On the downside I would look at the $80 area for some serious short covering and bottom fishing although in a broad market selloff this level will only be a temporary pause on the way to much lower prices. Overall I cannot see the stock falling  below $60 unless there was a global equity meltdown.

With the weak bounce in the broad market looking fragile, I will be looking at CAT as well as other large caps (consider F, GM, as well as XLE XHB XOP GDX and their components) to play from the short side. Yes we did see a stochastics buy signal recently that may lead to slightly higher prices as we climb a wall of worry but without volume that will soon come to an end. Overall the intermediate trend has over the past number of weeks proven itself to be down and thats the way it needs to be traded.