This was the Pivot Point trade on Caterpillar (CAT). (April 24, 2018)

Free Chart


I want to look at Caterpillar ( NYSE: CAT ) today. It is interesting, just yesterday in my Free Chart video I was talking about pivot points and I got some pretty good reviews on it. I wasn’t really thinking too much about it. I mentioned to Gary this morning, I said, “I was actually surprised, I keep forgetting that a lot of people don’t know some things that I kind of assumed they did.” He looked at me like I was an idiot and said,”Of course.” So I am coming back here on Caterpillar ( NYSE: CAT ). Here is why: These pivot points are today, these are based on yesterday’s price action. The pivot points here, you will see, R3, which are resistance level number three, which is 159.320.

That is going to be different tomorrow because first thing in the morning you are going to see these new pivot points generated by this day’s intraday price action. The high, the low, the open, the close, stuff like that. The way floor traders use these is, they pick this point of central tendency, we will call it, and this is the pivot here. The higher up a stock moves the stronger it is because it has to go through these; first level of resistance, second level of resistance, third level of resistance and as it goes to each one traders are looking at it as is this the time to short the stock? Is this the time to sell the stock?

The same thing on the downside. As the stock goes to the first level of support, is this the time to buy the stock? Oh crap! It’s going below it. I better sell it. The second one, is this the time to buy the stock? Crap! It is falling through that I better sell it. Okay, the third level of support here at 148.64, now I can buy the stock, right? Crap! It has fallen through that. I better sell it.

What these levels do is, they are not predictive, they are informative. They are INCREDIBLY informative. But we can look at this stuff intraday; the pivot points don’t change. We can look at this stuff intraday and see what happened. Where the stock gaps up here at R3 and I hope you got morning note. I had said, “$160.00 is not is not a buying opportunity for Caterpillar ( NYSE: CAT ). But the stock gapped up to above R3; it’s all good. Because, Oh my gosh! It is up at R3 and it is staying there? Well, hey, that is what we want. This is for me, I am a Caterpillar ( NYSE: CAT ) guy. I am a “CAT” lover, right? Then the stock falls back. Well, maybe not. It falls back to R2 and that is where it finds support. Then it gets up to a new high; this is the ultimate fakeout.

And by the way, at the same time as Caterpillar ( NYSE: CAT ) is doing this the Dow ( NYSEARCA: DIA ) is also hanging in here, right? So Caterpillar ( NYSE: CAT ) is doing this; it is up at a new high hanging in on R3. And then at some point the stock starts rolling over.

Well, if you are long Caterpillar ( NYSE: CAT ) and you see this big pop up and then it starts falling through these R levels and the market is rolling over; what do you think it is going to keep doing? It is going to keep cascading lower and lower so it gets back to the pivot point. Literally, if you are long Caterpillar ( NYSE: CAT ) and you do not see this stock falling through these levels and decide to sell, this is the volume weighted average price, which is for another time, you don’t see it has falling below the VWAP and then knifing through these resistance levels that should be support; if it does hit the pivot point you have got to be out at least at 154.00. When this starts falling through the pivot point you can see how volume, then, started to pick up. This volume starts to pick up as the stock knifes through the pivot point at noon and then the stock is still lower.

So when you are just using these pivot points you will be amazed at the amount of information they can give you. Now, you need to make the trade, you don’t want to just trade along with the pivot points, you have to understand what they are. But these are really, really, key edges that you can use in your stock trading, in your intraday trading. If you are a long-term trader you need to understand pivot points because at some point you are selling your stock; at some point you are buying your stock and it is really good to understand this stuff.