Skip to main content

Caterpillar Stock Blows Through Support. Now What?

Caterpillar stock is knifing through support. Here's where it may find its footing.

Caterpillar  (CAT) - Get Caterpillar Inc. Report shares are taking it on the chin on Friday, down about 6% after the company reported earnings before the open.

Unlike Apple  (AAPL) - Get Apple Inc. Report, which is rallying on the day, Caterpillar simply can’t seem to find any upside momentum despite reporting a top- and bottom-line beat.

However, inflated costs hurt the company’s margins. That said, management expects price hikes to offset those costs in the first quarter of 2022.

Still, the stock is being sold lower on the day. Investors have to remember that we’re in a “sell first, buy later” type of market, where the knee-jerk reaction is to sell the stock.

Apple is an exception at this point, as most stocks have been hit hard despite many reporting solid quarterly results. Of course, the supply chain and increased costs have been mentioned frequently, but I don’t know why that’s any sort of surprise at the moment.

With Caterpillar stock now breaking below the $200 mark, lets see how the charts are shaping up.

Trading Caterpillar Stock

Daily chart of Caterpillar stock.

Daily chart of Caterpillar stock.

Shares are currently hovering just below $200 apiece, but the way Caterpillar stock is trading is rather uninspiring.

Bulls were hoping that the stock could find its footing in the $207 area. If you zoom in on the chart, you’ll notice this was a big bounce area on both Monday and Tuesday.

Scroll to Continue

TheStreet Recommends

Further, it’s where the 50-day moving average came into play, along with the daily and the weekly VWAP measures.

Instead, Caterpillar stock opened just below this area, rallied slightly into it, then was quickly rejected as the stock went down to $200 and broke below it.

Caterpillar now faces a tough spot.

On the downside, it has broken below almost all of its meaningful moving averages, both on the weekly and the daily timeframes. That goes for its VWAP measures too.

On the plus side, Caterpillar has filled the gap from December at $199.02 and hit the 161.8% downside extension of the current correction — if we view this as an “ABC” type correction.

Further, uptrend support is coming into play around the $196 area.

In a raging bull market where dips are being bought left and right, this type of setup may be worth watching. I’m leery though — this isn't a raging bull market. 

I like Caterpillar as a recovery play and think it should do well. That said, these area of interest don’t seem strong enough to me to warrant a trade on the long side.

However, if we were to trade lower early next week, tag uptrend support (blue line) and bounce back up through today’s low, then that type of reversal could potentially be an attractive long set up.

In this tape, stay nimble and stay picky.