This was back in June. We had called the peak a few months earlier and the stock had completed wave 1 down and wave 2 up. It was around $105 just shy of a 62% retracement and a 4th wave of previous degree. Here it is now;
As anticipated, it did go a little higher but then dutifully started wave 3 down. It has lost 27% in wave 3 alone. Longer term the target is much , much lower at $60 or so;
Both charts superficially look alike. Both have very distinct B-waves , I think. Caterpillar, the one on the left, far exceeded its old highs primarily as a result of being the beneficiary of a lot of digging going on in mining and construction. Honeywell, on the right, did not do quite as well but did manage to, more or less, equal the old high (double-topping), and, hitting the underside of the previous channel.
Today both reported earnings, CAT was better by 44% and HON by 40%, and quite obviously both stocks traded down, CAT by as much as $7. It is not that CAT did not meet or exceed expectations, they almost all do. It is just that the CEO said a few things about China and the US administration that the market misunderstood or simple did not like. Earnings over the long haul are obviously important but in an environment where even large corporations go from shutting down to overtime in very short periods and where costs of capital are artificially reduced to zero and where productivity goes through the roof due to previous firings only to crash again due to exhaustion, it does not make a lot of sense to pay attention to. If these are B-waves, both stocks will go down regardless of earnings.
Earlier this month we anticipated that Cat. might peak (see chart on left). It did and fell $22 during the month. More importantly the pattern is easily counted as a wave 1 , followed by a corrective wave 2, which may, or may not be quite over. Next big move should be down inthe order of $36 and possible more.
Toromont Industries Ltd. is involved in renting and selling heavy construction equipment. Like Finning they distribute a lot of Caterpillar equipment.
The B-wave here is clear as a bell as well. Again an error is always possible but that would then probable be because we are in a wedge formation that will, but has not yet, complete the entire 5-wave sequence in much the same way as wave 5 of 3 is also a wedge. Should that happen then the stock would climb only a few more dollars at the most and basically kill time. Therefore a prudent investor would sell now.
Assuming that there might be some correlation between this stock and the manufacturer of much of it’s equipment , Caterpillar might confirm this outlook. Here is the latest Cat. chart, what bear market?? one might wonder;
