Caterpillar (CAT) - Get Report shares ended higher by 1.2% on Wednesday despite a disappointing quarterly report.

The company reported third-quarter earnings of $2.66 a share, missing expectations by 24 cents. Revenue of $12.76 billion decreased 5.6% year over year and missed estimates by a wide margin, coming up short by $730 million.

Worse, management slashed its full-year earnings outlook.

That said, something doesn't add up. Caterpillar reported a top- and bottom-line miss, reported year-over-year declines in sales and earnings, and slashed its full-year outlook. Despite all that, shares ended higher on the day.

Despite the bearish report, one may be inclined to come away with a bullish feeling thanks to this price action. As a result of the post-earnings reaction, Caterpillar was selected for Real Money'sStock of the Day.

Let's take a closer look at the charts to drill down on what's going on here.

Trading Caterpillar Stock

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Let's zoom out before we zoom in. Above is a three-year weekly chart of Caterpillar stock, while below is a one-year daily.

On the chart above, we can see that Caterpillar has been trapped in a downward channel (blue lines) for the better part of two years. This week's high comes into play near channel resistance. Bulls eventually want to see a move over $140, giving CAT stock a clear runway for higher prices.

On the chart below, we can see that CAT stock generally draws in sellers when prices are in excess of $138 and draws in buyers when prices are below $118. Given this range, one can see why clearing $140 would make the stock more attractive.

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With Wednesday's flat action action so far, traders have a blueprint on how to navigate the stock.

Caterpillar is stuck between the 78.6% retracement at $135.36 on the upside and the 61.8% retracement at $129.72 on the downside. Below the latter and some bulls may consider stopping out of their position. That's a reasonable take. However, some may consider waiting to see if CAT stock can hold the 200-day moving average.

In premarket trading, Caterpillar stock traded down to a low of $128.35, just two ticks below the 200-day. A break below this mark likely draws in more sellers.

On the upside, look for a move over the 78.6% retracement. Above it could send Caterpillar to its session high and to range resistance near $138. Over $140 could accelerate the rally.

Simply put: Over $128.35 and Caterpillar stock is still OK on the long side; below is bearish. Above the 78.6% could send shares to range resistance, while over $140 is bullish.

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This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.