After CAT’s false start in 2013, culminating in a 20% drop from the Jan highs to the April lows, traders were locked in a sort of bull bear tug of war where the bears were playing for a break for what was becoming increasingly formidable technical support just above $80, while the bulls were desperately hoping for a re-test of $90 on the upside.
Sentiment in CAT could not have gotten worse last year as Wall Street analysts were very neutral on the stock for most of the year and also saw one high profile short Seller Jim Chanos lay out his case for lower lows in CAT. But the stock is up almost 20% from the November 2013 lows and up 7.5% on the year and quickly approaching the 2013 high made in Feb:
With the recent strength the stock is approaching some very significant long term technical resistance at $100, but if it manages to get through there, especially on an uptick in fundamental news, traders will be eyeing the 2011/2012 double top.
With Implied vol approaching three year lows directional players may be inclined to define their risk to play for the breakout while longs could purchase relatively cheap protection and outright short bets haven’t been this cheap in vol terms for some time:
We’ll keep our eye on this one.