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NEW YORK (TheStreet) -- In a previous update on Caterpillar (CAT) - Get Caterpillar Inc. Report, we noticed a directional change was under way.

CAT is now on surer technical footing as prices have traded sideways for three months and the 50-day and 200-day moving averages have flattened out. See chart below.

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In the chart of CAT above, we can see a flat On-Balance-Volume (OBV) line, suggesting that the selling pressure has dried up. We can also see a bullish divergence now with the momentum indicator making a higher low.

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The chart above shows a rising OBV line in this time frame and the 40-week moving average beginning to flatten out with momentum improving. If the DJIA has a year-end Santa Claus rally that propels it above 18,000 in the next few weeks, we could see CAT rally toward $80 in sympathy.

TheStreet Ratings team rates CATERPILLAR INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate CATERPILLAR INC (CAT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and poor profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 19.3%. Since the same quarter one year prior, revenues fell by 19.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • CATERPILLAR INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CATERPILLAR INC increased its bottom line by earning $5.87 versus $5.75 in the prior year. For the next year, the market is expecting a contraction of 21.6% in earnings ($4.60 versus $5.87).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Machinery industry. The net income has significantly decreased by 63.8% when compared to the same quarter one year ago, falling from $1,017.00 million to $368.00 million.
  • The debt-to-equity ratio is very high at 2.36 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, CAT maintains a poor quick ratio of 0.85, which illustrates the inability to avoid short-term cash problems.
  • You can view the full analysis from the report here: CAT

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.