Bellwether Bummers

I'm looking at the market with some degree of skepticism today. The charts of two stocks that I use as bellwethers for China, the emerging markets and our domestic markets are the cause of my concern.

Caterpillar (CAT) is inextricably tied to China and growth in the emerging markets. The daily chart below shows the stock trading in a channel for the last month above a $95 support zone. A series of high wick candles have formed over this period, and a high-volume, engulfing candle that formed last week retested the support zone. Daily moving average convergence/divergence is tracking lower, as is the weekly histogram overlay, and Chaikin Money Flow has crossed below its 21-period average and is in negative territory, reflecting distribution. The Bollinger bandwidth indicator at the bottom of the chart reflects compression in price range not seen since the period last November that preceded the strong run to recent highs. The behavior of the broader market lately has me focusing on pure price action, candle patterns and money flow, and this chart looks tentative in all three of those areas. Caterpillar is a short candidate after a close below the support zone in lower candle range, with an initial percentage stop above the center Bollinger band....203 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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