Chart of the Day – The $CAT is Out of the Bag

by Dan February 24, 2014 3:52 pm • Commentary

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.

CAT chart 2013 from Bloomberg
CAT chart 2013 from Bloomberg

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:

CAT 1yr chart from Bloomberg
CAT 1yr chart from Bloomberg

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.

CAT 5yr chart from Bloomberg
CAT 5yr chart from Bloomberg

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:

CAT 3y chart of 30 day at the money implied vol from Bloomberg
CAT 3y chart of 30 day at the money implied vol from Bloomberg

We’ll keep our eye on this one.