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Longstanding readers of this section in the CANSLIM.net After Market Report are well versed on the importance of upward trendlines.  It is also important to note how stocks behave after an upward trendline is violated.  By definition, an upward trendline develops when a stock has steadily appreciated for an extended period of time.  During that period the stock vacillates between the lower and upper boundary of the trendline.  However, once the bears show up and the lower trendline is violated then odds start favoring the possibility of further downside testing. 

Caterpillar Inc. (CAT +0.09 or +0.12% to $72.87) ended higher on above average volume on Monday. This stock was recently featured on Wednesday, April 12th, 2006 in the CANSLIM.net Mid Day Breakouts Report (read here) with the note - "Base has improved. Breaking out intra-day today triggering a technical buy signal."  However, this was a later stage breakout and the stock had been steadily rallying since placing a near-term low near its 200-day moving average (DMA) line on October 21, 2005. Over the past 7 months an upward trendline has developed. However, last week this trendline, along with its 50 DMA, was violated. These violations are worrisome sell signals, and further deterioration beyond prior chart lows in the $70-71 range would increase concerns and suggest even more strongly that lower prices are likely to follow. 

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