Compelling Compression Levels In Caterpillar (CAT)

While it’s true that price tends to alternate between states of range expansion (trend/impulse) and range contraction, it’s rare to see a clearer picture of a price compression pattern than what is developing at the moment on the Caterpillar (CAT) Charts.

Let’s take a look at the key compression pattern and Value Area price levels to watch for any sort of breakout or development of a trend/impulse move yet to come (plus it’s just a neat looking pattern).

Here’s the pure price Daily Chart Triangle:

[Related -Planning a Range Fade or Breakout Trade for Caterpillar CAT]

We see a sideways or compression triangle pattern at work near the $84.00 per share level, and the pattern started in early 2011.

The compressing trendlines are intersecting accordingly as price trades down to a tight range or “coil” ahead of a potentially large breakout or trend impulse outside the compression trendlines.

I added two volatility indicators (see my prior educational post “Three Quick Indicators to Measure Volatility”) which highlight the price compression and reduction in range objectively (beyond a visual chart pattern).

[Related -The Best Of Three Tech Shorts]

Both Standard Deviation and the Average True Range (daily) indicators show the lowest volatility levels of 2013 and even 2012.  One has to go back to January 2011 to see similar low levels of price volatility.

Using the TriggerCharts Radar indicator, we can specify the key levels to watch more accurately:

Remember, we monitor the different states of price action – horizontal range and vertical trend according to the “Price Alternation Principle.”

Price tends to alternate from “trend/impulsive” action (seen from 2009’s low to mid-20111’s high) and “range/consolidation/value” which is seen from 2011 to present.

The yellow lines represent the “Point of Control” or place where the most price action along with volume activity has transacted at a given price.

The indicator allows us to “step inside” price beyond what typical hand-drawn trendlines can do.

We note a declining “value” or “control” level toward the present $84.00 level which we see clearly on the Daily View:

The implication – at least from the Weekly Chart – is that any breakdown under the horizontal support line near $82.00 suggests that a “trend or impulse” breakout could trigger which opens price to move through “Open Air” on the Weekly Chart.

The downside “value area” target from the weekly frame would be the next Yellow Line (point of control) into $70.00 per share.  We also note the immediate value area (yellow line) from mid-2010 operating at the $70.00 level currently (the “support shelf” to watch).

Thus a breakdown under the $70.00 level could open shares for a breakout drop toward $70.00 per share.

Otherwise, we continue to monitor this longer-term sideways compression or horizontal area which has been the dominant pattern through all of 2013.

An upside break above $85.00 suggests that shares could trade up through the “open air” toward $87.00 and the falling trendline into $88.00.

Watch these levels and plan accordingly with respect to the support, “Value” areas/targets, and potential for a breakout from this ongoing Range Compression which continues to pull price near $84.00 like a magnet.

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