The U.S. presidential election has been decided. When President Donald Trump takes office this coming January, one thing that he should be able to push through is infrastructure spending. Rebuilding of airports, schools, bridges and much more will obviously benefit certain industries in the U.S. market, and that means good things for Caterpillar Inc. (NYSE:CAT). I think CAT stock almost certainly will get support.
One of selling points that Mr. Trump has continually reiterated throughout his two-year campaign run is that America badly needs reinvestment in infrastructure. As someone who frequently travels the globe, I can attest to this fact. Airports, bridges, schools and more in many other developed countries — and even some emerging markets! — are in a significantly more modern state compared to what we see here in the U.S.
The prospects of Mr. Trump kicking off a significant new infrastructure investing program — something he also reiterated last night in his victory speech — appealed to business people. After all, it could bring about economic growth, and it makes plenty of sense to the middle class as a significant source of new jobs.
As a major manufacturer of construction machinery, Caterpillar stock should stand to benefit from a wave of infrastructure investing.
Let’s look the charts to gain some perspective and see where CAT stock may be a better buy again.
Caterpillar Stock Charts
On the multiyear weekly chart, we see that after an explosive rally off the 2009 lows, CAT stock began to top out in 2011. The stock saw lots of volatility throughout 2011 and into 2012, then early that year completed a major double-top formation.
Caterpillar then continued to trade choppy, but in 2014, it completed a significant lower high versus the 2011/2012 double-top.
Finally, by January of this year, CAT stock had retraced a full 61.8% of the entire 2009-11 rally. For those not familiar with Fibonacci analysis, the 61.8% number often tends to hold as support or resistance. In my eyes, the January 2016 lows could thus have been significant through a multiyear lens.
Any retracement back into the low to mid-$60s in Caterpillar stock could thus be another major buying opportunity in the bigger picture.
When I last mused about CAT stock in early October, I offered that for the near- to intermediate-term, shares had rallied too much. A pullback toward a first price target around $85 appeared likely. A couple of weeks later, CAT reached this price target, and as a result, it also retraced back to its 2016 uptrend line.
Given the rise in volatility we are witnessing this morning on the back of the presidential election outcome, I am not (yet) a buyer of CAT stock. I’d first like to see the dust settle before taking an initial stab.
My first area focus area to buy the stock would be upon a drop into the high $70s where the red 200-day simple moving average currently resides. This moving average has been a good reference line over the years, and a drop to this line — followed by a good bullish reversal — would be worth chasing.
Bottom Line on CAT
Don’t blindly buy Caterpillar stock today just because a Trump presidency might support the stock. Instead, exercise patience and wait for a meaningful bullish reversal to rear its head, and then leg into the Big Cat.
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