Want to Buy Caterpillar? Check Out the Chart Ahead of Earnings

Caterpillar is a controversial stock between bulls and bears and the charts reflect that sentiment. Here's a look at the stock ahead of earnings.
Author:
Publish date:

Caterpillar  (CAT) - Get Report was down about 1% on Monday despite the S&P 500 rallying over 1% as last Friday’s strength continued into the new week.

There are a number of big earnings reports this week, ranging from mega-cap tech like Amazon.com  (AMZN) - Get Report to industrial and transport companies like 3M  (MMM) - Get Report and United Parcel Service  (UPS) - Get Report.

Included in the mix is Caterpillar, which will report earnings before the stock market opens on Tuesday.

Caterpillar is a somewhat controversial name, at least when it comes to debates in the investment world.

Bulls like the stock for the world economy’s eventual snap-back to growth and ahead of a possible infrastructure deal. It’s a catalyst that’s likely brewing in Washington, with the government increasingly looking for ways to stimulate the economy.

On the other hand, construction work is down and spending continues to sink. That won’t bode well for Caterpillar, which is why the stock is still almost 25% off the highs. 

That's even as the company maintains its dividend payout. Let's look at what the charts say ahead of earnings. 

Amazon is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AMZN? Learn more now.

Trading Caterpillar Stock

Weekly chart of Caterpillar stock.

Weekly chart of Caterpillar stock.

Surprisingly, Caterpillar stock didn’t get hit quite as hard as I would have thought. While a peak-to-trough decline of 41.5% isn’t exactly a pillar of strength, it’s not much worse than the 35.5% decline in the S&P 500.

Further, the stock’s 29.5% rebound from the lows barely lags the index’s 31% rally. That said, we care about where Caterpillar is going, not where it has already gone.

A look at the weekly chart shows the stock’s rapid rebound from sub-$90 to $128, where it was promptly rejected by the declining 50-week moving average (and 200-day moving average, not shown).

The stock initially held the 200-week moving average on the ensuing pullback, but has since found this moving average to be resistance as well. 

After the earnings report is out, bulls will want to see Caterpillar stock hold the $110 level and 38.2% retracement. Below that puts the $100 level and the 23.6% retracement near $101 in play. If that fails to hold as support, the March low is technically on the table.

On a rally, CAT stock needs to close over the $118 area, which would put shares over the 200-week moving average and the 50% retracement.

Above that puts the 61.8% retracement near $125 in play, followed by the declining 50-week moving average that last acted as resistance. Over this area puts $135 to $140 in play.

For now, watch for a move below $110 or over $118.