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Trade Idea: $CATch me if you CAN!

Updated: Jan 6, 2023



Thanks for taking the time to read today's blog post where we use simple price analysis and a trend line to show resistance in a key stock. These are simple and effective Technical Analysis tools everyday market participants use to both short term and long term gains.

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We caught an excellent trade going long $CAT calls earlier this week for 125% and 100% gain in one day!

As traders and investors we attempt to make the market easier to trade by using simple patterns to profit on a short and long terms basis. The Dow Jones Industrial, which we had been long using $UDOW and caught a 40% return. Therefore, if we were going to put on a trade with the market coming off a nasty move from the CPI numbers and FED Meeting we want to be long the strongest stocks which would be in the Dow Jones Indus trials ($DIA).

Caterpillar Inc., stock symbol $CAT, is an American Fortune 500 corporation and the world's largest construction-equipment manufacturer. In 2018, Caterpillar was ranked number 65 on the Fortune 500 list and number 238 on the Global Fortune 500 list. Caterpillar stock is a component of the Dow Jones Industrial Average.

Inflation to Peak in June
Our CEO stating Inflation to Peak in June

In particular, $CAT, is apart of the Industrial Select Sector ($XLI), which hold names like Boeing, $BA, and Union Pacific, $UNP, as well as major U.S. airlines. As we expected inflation to cool off in June as the Federal Reserve has been hiking at the fast pace in recent history. So why did we know to get long???

Remember, the market is forward looking!

So when we started to see inflation cool off as predicted we knew the actions that the Federal Reserve was taking was doing what was expected. Therefore, inflation gets stymied, along with the Santa Rally at the end of the year and a falling dollar creates the real catalyst for us to get long this bear market in October.

Has it been a ripper!

So now we are ending 2022 off on a strong note and looking a for nice quick hit on $CAT as it sports a beautiful bull flag pattern. See below of an example so you know what to look for when spotting this setup!

Bull Flag Pattern
Bull Flag Pattern

How to identify a bullish flag pattern and what it means:

  1. Preceding uptrend (flag pole),

  2. next, we identify a descending consolidation in price,

  3. a shallow retracement where the RSI and MACD diverge positively, and

  4. lastly, a break out of the flag pattern.

OK, great Miguel! Now what??

Well let's make some money, of course, by continuing with the path of least resistance!

We bought the December 30th 2022 $242.50 and January 6th $247.50 Calls coinciding with the high in 2021 for $CAT and some common stock for trade on the long side in the private feed. If you're interested in our long term targets, how we take advantage using options than considering joining our private feed for a month for free (@essex_trading).

As always I am happy to answer questions you have on my public feed (@wizdaytrader) and appreciate the engagement!

Thanks for reading and remember to trade confidently!


Essex Trading Quote of the Day (#EsxQotD)



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