Despite its well-documented challenges this year, Caterpillar's (CAT) stock has been rocking.

Shares of Caterpillar closed Friday hovering around new 2017 highs. The stock's steady climb since the March low, which includes four straight higher monthly lows, has now stretched to a 20% gain. This healthy bull run, despite light volume of late, appears headed for more upside and a retest of a major level near $111.50.

Over the last three weeks, volume has dried up considerably, while Caterpillar has drifted higher. While price action over this time frame remains bullish, this easing momentum may prove to be a warning sign. The stock will likely need a powerful boost in volume to clear the $111.50 area. Back in 2014, the stock left behind a major top here, just before beginning a one-and-a-half year bear cycle. Caterpillar may need a healthy consolidation before successfully clearing this level.

Ahead of the July 25 earnings report, Caterpillar investors should keep a close eye on the $106.00 area. As long as the stock can hold above this key support level, a healthy consolidation will remain intact. A solid base near this level could supply the footing needed to convincingly take out $111.50. On the downside, a close back below $105.00 would be quite damaging in the near term and could lead to a much deeper pullback.

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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.

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