CAT breakaway gapWill this breakaway gap in NYSE:CAT establish a new uptrend? Gaps occur when the low price of the current day is higher than the high price of the previous day. The majority of gaps are filled over time, but a sudden gap fill usually indicates a trend reversal. A breakaway gap occurs at the beginning of a trend after a period of consolidation, similar to what we've observed with CAT in October 2022 and in a downtrend in March 2023.
We can project the outcome after a breakaway gap by measuring the vertical distance from the most recent swing low to the middle of the gap, and then using that same distance from the center of the gap to project the next local top of the trend.
For this opportunity I will take advantage of the pullback from the market reaction to Fitch downgrading the US credit rating to enter below yesterdays close. I'll target ~$301 to take profit, which is near the top of the measured move and aligned with the 1.618 fib of the retrace from January to May. My initial stop loss is set at the gap open $270 and will be adjusted as a trailing stop to protect profit as the trend matures.