Dow’s top dog is about to fall: Trader

The best-performing Dow stock this year is about to fall, says one trader.

"I think Caterpillar is headed lower here," Andrew Keene of AlphaShark said Thursday on "Trading Nation." The stock has rallied more than 22 percent in 2016 amid a resurgence in commodities.


According to Keene, there's trouble brewing in the charts. On a daily chart of Caterpillar, he noted the stock is starting to make "lower lows, and lower highs," pointing to a level of resistance at $90.

"We will most likely get support here at the 100-day moving average, which is around $82.50; the next level of support is the 150-day moving average, which is around $79.50," he noted.

Keene sees Caterpillar headed to $80, or nearly 4 percent from current levels. Adding to his bear thesis, he mentioned unusual activity in the options market; an institutional buyer purchased 8,000 shares of Caterpillar December $80 puts for $1.30 per contract.

But rather than play for a straight drop, Keene used a hedge in case Caterpillar does take a leg higher in the next few weeks. Keene recommended selling the December 85/87.5 call spread for $1.00.

In this trade, Keene profits as long as Caterpillar stays below $86 by December expiration.

"I am risking $150 to make $100, but I can make money if the stock is flat, lower or goes up by less than $2.50," Keene said. "So I like this spread."

Trader takeaway: Andrew Keene is bearish on Caterpillar and is selling the December 85/87.5 call spread for $1.00 in order to play for a move down to $80 per share.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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