Elliott Wave Analysis of Caterpillar Inc. (CAT) by Sid from ElliottWavePredictions.com.  Click on the charts twice to enlarge.

This continues my series on individual Dow 30 components.

CAT monthly 3-27-15

In my main count of the Dow Jones Industrial Average, 1978 marked the end of a cycle (teal) degree wave 4, but in CAT, the sideways movement from the 1970’s continued all the way through to 1984.  From that 1984 low, (shown on the monthly chart above), its easy to see 5 waves up into 2007.  I’ve labeled that rise from 1984-2007 in Caterpillar as cycle (teal) wave 5, and therefore the end of supercycle (olive) wave 3.

CAT weekly 3-27-15

Then, as shown on the weekly chart above, CAT carved out an expanded flat from July 2007 through March 2009.  I’ve labeled the March 2009 low as Cycle (teal) degree wave A.  That labeling was supported by the fact that the following rise into May 2011 stopped going up at just slightly beyond a 1.382 relationship with wave A (teal), a very common relationship between wave B and wave A within an expanded flat.  And until there eventually was a slight new high in February 2012, it appeared very likely that cycle (teal) wave B had ended in May 2011.  That slight new high in 2012 was a big deal though, because it indicated that cycle (teal) wave B was still underway.  Also, because the pattern from the 2009 low into the 2012 all-time high does not constitute a completed Elliott Wave pattern, it appears likely that cycle (teal) wave B remains incomplete to this day.

The slight new high in Feb 2012 also indicated that while the drop from May 2011 through October 2011 appeared at first to form as a 5-wave impulse, that simply cannot be the case.  So I’ve labeled the drop May through October 2011 drop as an intermediate (black) wave A in the form of an blue ABC zigzag.  (It also could have been labeled as blue WXYXZ.)  That was followed by over 3 years of complex sideways movement that I’ve labeled an intermediate (black) wave B triangle, ending in November 2014.  The strong downward movement in CAT since November 2014 appears to be a terminal thrust from that triangle.  That downward movement should finish as a 5-wave impulse, and appears to be incomplete, although downward momentum is currently waning.

CAT daily 3-28-15

As shown on the daily chart above, downward movement from the November 21, 2014 high is interesting because it may have a wave 3 (blue) inside of it that is shorter than blue wave 1 was.  Wave 3 of a five-wave impulse cannot be the shortest of waves 1, 3, and 5, so this may be indicating that wave 5 must be shorter that wave 3 was.  If my blue wave 3 label is placed correctly, blue wave 5 cannot end below 69.69.  Also, notice the possible bullish divergence already showing on the daily MACD.  Downward momentum has definitely been slowing since late January.

So why would Caterpillar stock bottom soon, and rally to new all-time highs over the next few quarters?  Compare the correlation between CAT stock and the price of copper in recent years by comparing the weekly copper chart (below) with the weekly CAT chart shown earlier in this post:

Copper weekly 3-28-15

Both CAT and Copper carved out expanded flats into their late 2008/early 2009 lows, and then rallied to large (primary-degree) tops in the first half of 2011.  Subsequent downward movement in both has been corrective.  It also appears that copper put in an important 18-month Hurst cycle low in late January.  Also note that the rise from late 2008 in copper through early 2011 was in 5-waves.  5-wave upward impulses during that exact period also appeared in several other highly correlated items, including AUD/USD, Hang Seng, Kospi, and Platinum.  That 5-waves up was followed in all those items by a multi-year partial retracement, dropping into very recent 18-month cycle troughs in all, suggesting that many commodities and commodity related items (like CAT stock) may very well be set for a push back into all-time highs over the next several quarters.

If that is to occur, “king dollar” may very well be finished going up, and inflation may be in the every early stages of rearing its head, as the following long-term Elliott Wave interpretation of the US Dollar Index (DX) suggests.  Especially significant (and outlined in red on the chart) is the 3-waves down from the 2001 high into the 2008 low.  Generational trends don’t end with 3-wave moves into a major low, unless it is the 5th wave of an ending diagonal.  If a down-slanting contracting ending diagonal started at the 1985 all-time high in the US Dollar Index, the 2008 low can only have been the end of wave 3 within that diagonal.  Wave 5 to the downside may have started last week.

US$ DX monthly 3-28-15

What does all of this suggest for the US stocks market moving forward?  How about Gold and Silver?  The German DAX?  Oil?  Currencies?  Bonds??  What can or will the FED do about all of this?

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