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Enough bearishness, lets talk bull

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Just because some of the broader market indicators are hinting at lower prices doesn't mean there aren't some stocks that are showing bullish signs. One stock that's making a quite move higher than looks ready to pounce higher still are shares of Caterpillar (NYSE:CAT). Despite some broader market weakness, there are still some key sectors like the Dow Transports (TRAN) that are holding their own and hints that the MARKET still is casting some bullish votes toward economic recovery.

After all, one would surely think if the economy were headed back in the tank, then the transports should be seeing selling, but they've been holding their own and still trading above their longer-term moving average in the 200-day.

This has us looking at the triple-top buy signal in shares of Caterpillar (NYSE:CAT) and the bullish point/figure chart. This stock gave a buy signal back in October and has yet to give a sell signal. This action on a longer-term basis strongly hints of institutional sponsorship and a stock traders/investors should consider for the bullish part of their accounts.

Caterpillar Chart - $1 box

For bears that perhaps think/believe the recent market declines are due to further economic weakening, then an observation of persistent strength in the supply/demand chart of Caterpillar (CAT) is perplexing.

In recent weeks we've talked about how some parts of the market actually are bullish and some of the deeper cyclicals like a Caterpillar (CAT) continue to hint that bullishness does exist in the more economically sensitive stock.

I "categorize" CAT as a "heavy equipment" stock, not a transport. But past and current observations of some stability from the Dow Transportation Average (TRAN) above its 200-day moving average along with bullish technicals in an economically sensitive stock like Caterpillar (CAT) should have us thinking that economic growth prospects are still in play.

The first sign of trouble for CAT would be a trade at $47. For a bull looking to dodge some volatility from technology bets, this stock looks like a very good candidate. For options traders, I'd be looking to buy some time until option expiration.

According to Professor Davis' study, the triple-top in a bull market environment is profitable for a bullish trader 97.9% of the time, for an average gain of 28.7% in 6.8 months.

Since our market internals are either "bear confirmed" or "bull correction" a bullish trader would be wise to establish just 1/2 bullish position, then look to add on strength once the bullish % reverse into bull status.

Jeff Bailey
Senior Market Technician
Option Investor

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