But we pay attention to the charts… we go Off The Charts every Tuesday for three reasons… first because it is my job to teach you and maybe some of you will really believe in some of the technical jibberish, find it useful… or at the very least you will know what the heck people are talking about when they come on TV and talk about head & shoulders patterns, no not a shampoo, or some support lines, not an engineering or a pantyhose term…. the second reason is that you always have to know what is in style on the Wall Street fashion show… what the latest fad is that the big boys are following, right now a lot of money managers are taking their cues from the charts, especially when they are confused… third, the fact is that some of the best chartists out there have actually got a lot of the most important moves in this analysis… at least for me… but this time around we had Rick Bensignor, chief market strategist at Execution Limited, and my colleague at TheStreet.com, where I am chairman… a fabulous technician and a friend of mine pretty much nail the bottom in Bank of America (BAC)… and the banks… and therefore the whole market… something that we talked about on Off The Charts at the very beginning of this months massive rally.

So whatever we think of the mumbo jumbo chicken gumbo behind looking at the charts… we have to admit that it produces results… and I will do anything to get results… I am happy to read goat end trails if I thought they would do something to yield any useful information about the market… so today in the hopes of getting some decent results we are going off the charts to look at Caterpillar Inc. (CAT)… a stock my charitable trust, ActionAlertsPlus.com owns… which my technician friend Rick Bensignor believes is a buy between $24 and $26... so you will have to wait for a pullback because it was up here today.

Why does Bensignor like Cat’s chart… this here is an example of one of the sillier name patterns the chartists look to… it is called a reverse head & shoulders… or a head & shoulders bottom… which is not something that I like to picture in my imagination… but take a look… for instance, here is just a regular head and shoulder right… so it would start here and it would go down over time… so the stock starts here it goes up, it peaks, and then it has the head, and then the shoulder, and then it goes down… now, we turn it upside down and we have what I call a reverse head and shoulders… now you can see the power marked out… so lets say that the stock started here, it went down like this, and then it came up the side right thru here… this kind of pictograph usually indicates that a stock has bottomed… for Cat to really rally off of this reverse head and shoulders pattern… Bensignor and all of the other chartists out there would want to see the stock rally above what is called the neck line… you can see the neck right… the downward sloping line across what would be the neck of the person of the head and shoulder that we are talking about… that means a rally above $30... so for instance this would be like $24... and then this would be like $30... and then if it really went up you would probably get like $45... yeah, this is a reverse head and shoulder… all kinds of people look at the charts are likely to pile into Caterpillar because of this reverse head and shoulders.

That is not the reason that Bensignor likes the chart… although, it definitely helped his thesis… he doesn’t want for Cat to cross the neckline… and neither do we… Bensignor’s read on the chart is that we want to buy a pullback between $24.73 and $26.35... these two prices specifically, because that where is the level where Cat will find support… meaning where buyers will overwhelm sellers… that would be right at the head of this guy… and this is the reverse head and shoulders…and cause the stock could go higher, if it goes down that low based on Cat’s previous action.

Now, let’s go to the weekly chart so we can really see… on last week’s off the chart we talked about something fairly complicated… it was called the Moving Average Convergence Divergence… we call it the MACD, that is the slang… if you are ever own a trading desk you will say hey listen the MACD looks good here… at the very bottom of the chart are two MACD lines… this is the MACD line and the signal line, and when the MACD crosses the signal line from below while they are both under zero… right here, okay… that is considered to be a bullish move… it happened to Cat in March… just in March it happened… and at the same time that the stock was hitting a lower low in price… that is what chart watchers call a positive divergence … I give you all of this stuff because if you are really interested you will understand the terms… that is more jibberish, that means when an important technical indicator line like the MACD follows… Bensignor follows… it means that it is going higher, while the stock price is still going lower… a positive divergence is sort of a Holy Grail for technicians… because it is often a very bullish sign that doesn’t actually show up in the stocks price… Bensignor thinks Cat has it… this is predictive… I did always look for this pattern at my old hedge fund… there is software that you can get that shows you MACD… and I made tons of money trying to find them… they don’t happen all that often… I regard them like pornography… you know it when you see it.

According to noted chartist Potter Stewart, who was also a Jim Dandy member of the Supremes… why do I think if the Cat technicals say Cat is a buy… what do I think… Cramer the fundamentalist thinks that it is a buy, buy, buy… although I too would like to wait for a pullback… okay, I need to see that pullback… we always want to buy on weakness and sell on strength… can I see that first chart for a second… Cat is also a stock that is almost universally disliked… see here… I mean you can actually see this… you see the head and then what happens after it goes over the head… it heads right up… that is the head and shoulders… okay.

Now, the stock is down 67% from its high… alright that would be here, okay… now, no one likes the stock… there are 14 analysts have holds, 3 sells, only 6 buys… the last quarter was abysmal… I am predicting that that would be here… this was the last quarter… and now I think that it is going to go up this way… Cat missed earnings by .17 cents which caused it to be down here… the company slashed guidance by half and indicated that 2009 would be the worst year since the post war period… Caterpillar got crushed along with the rest of the market… and then got crushed again when it became clear that Obama’s infrastructure stimulus package did not have a whole lot of Cat orders in it… but now things are so down that you can say that things are starting to look up for the company… Cat with 50% of its sales coming from outside of the US… big beneficiary of the weak dollar… it means that it can sell more of its equipment for less in foreign countries… Cat has also got exposure to China… and their stimulus much bigger relative to the size of the economy… and much more effective… should let a hundred Caterpillars bloom,

Finally, no one is anticipating recovery right now… no one… the stock is priced as though things will never get better… price for ultimate pessimism… but when we get a recovery… Cat will be the stock to own… and with the housing bottom coming… with limited new home supply… with record low permits… with massively great affordability… with refinancing… I just don’t see how Cat’s products won’t be in demand both here and China… I am worried about Cat’s dividend… you can not buy it for the yield… it is not Marathon Man like safe… it lacks the Olivia sign of approval… because it is a very real possibility that Cat may have to cut its dividend… crane maker Manitowoc Co. Inc. (MTW) has been telling us some bad stories, that has me worried… but if Cat does cut its dividend that should give you the chance to buy the stock for less… that is where we get this thing, that is the shoulder… remember, you can see from the shoulder that it is a dip down.

The bottom line…