Caterpillar (CAT) — This blue-chip company is the world’s largest producer of earthmoving equipment, and it also makes mining equipment and electric power generators and engines used in petroleum markets.
On Friday, CAT was the weakest of the 30 Dow stocks, falling 1.8% after it said sales for the June-to-August period declined 10% year over year. On Monday, shares lost another 1.6% due in part to emerging market weakness. Over the past two years, the company has been hurt by lower mining demand, falling construction spending and slower economic growth in China and other developing nations.
S&P Capital IQ has a “buy” on the shares, expecting earnings to rise from $5.75 per share last year to $6.20 this year and $7.21 in 2015. But this is down from $8.48 per share in 2012, and the aforementioned issues could result in earnings estimates being reduced.
Technically the stock is in a downtrend. It jumped to a 12-month high of $111.46 in July, but failed to exceed the previous all-time highs above $116, made in May 2011 and February 2012.
In July, CAT successfully tested its 200-day moving average, but a subsequent rally in September failed. On Tuesday, the stock plunged through its 200-day moving average at $100.71.
The lower highs and lower lows have formed a bear channel with the bottom of the channel now at about $97. CAT has experienced heavy selling since late July, but it recently picked up.
Long-term holders may want to sell here. Traders should sell shares short on a bounce to $102 with a trading objective of $90. Enter a stop-loss order at $107.
