A very similar setup is forming in shares of heavy equipment maker Caterpillar (CAT). Like Goldman, CAT has been forming a head and shoulders pattern, in this case at the end of the stock's downtrend. While that's not the normal price action that we'd expect to see before a head and shoulders setup (it's a "topping" pattern, after all), the trading implications are still the same.
The sell signal comes on a breakdown below the neckline.
The head and shoulders may be a popular pattern, but the research shows that it's still a valid one: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." That's reason enough to keep a close eye on GS and CAT this week.To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.
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