Fourth of July Tractor Pull Anyone?

• Posted by Greg Harmon
• on July 3rd, 2012

Once you realize that there are more tourists and transplants in New York City than born and bred Americans you might get the itch to get out into the countryside to celebrate our Nations birth. If you do then you will see things that they don’t show you on ESPN. One of those is a good old fashioned tractor pull. You know what a tractor is right? We Midwesterner’s use them to plow the fields and harvest the food you gorge yourselves with that makes healthcare so unaffordable. You’re welcome. In a tractor pull you attach your tractor to a sledge and see how far it can pull it. Simple huh. Well it may have started very simply when a couple farmers put down a few beers after plowing the field came up with the idea, but it has evolved. Now the quality and power of your tractor determine the winner. Most look at the HP of the engine and the torque to determine who may have an edge. But just like fans that pick their NCAA basketball bracket based upon the mascots, and not the wins or strength of schedule, there is another way. Which stock looks stronger. The Ratio chart of Caterpillar, $CAT, against Deere, $DE, below reflects the relative strength of the stocks. There is a lot of information in this chart. First the extensions of the lines

forming the previous symmetrical triangle have remained important after the breakout, with the green support line in play now, after a crash following the break of the red line. The support level is significant for other reasons as well. Shift your attention to the Relative Strength Index (RSI) at the top. Every time that the RSI has become overbought, in the red circles, the ratio has fallen back towards that support. And every time that the RSI has become oversold, the green circles, the ratio has moved significantly higher. Moving your eyes to the bottom of the chart and note that the Moving Average Convergence Divergence (MACD) indicator shows a cross confirming the reversal moves. Focusing on the three reversals at support. Notice specifically that the histogram gave a reversal signal first, moving back toward the zero line and then the Exponential Moving Averages (EMA) confirmed by crossing. Which brings us back to our Fourth of July tractor pull. The RSI is turning higher with a MACD histogram that has reversed higher with the ratio on support. All signs point towards a run of Caterpillar higher against Deere. All we need now is the confirmation of the EMA cross. Time to start revving up the engine.

Bet you boys in New York City don’t do this for fun!

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