The waiting is over, the basing is done. The breakout in Caterpillar Inc. (NYSE:CAT) has officially begun. Buyers flocked to the heavy equipment juggernaut Tuesday, sending shares up by 1.95% to fresh five-year highs. And CAT stock is a stone’s throw from popping to all-time highs. We’re talking mere pennies.

If yesterday’s stock surge has you shopping for a bull trade, stop your search. Caterpillar is what you’ve been looking for.

But before we begin our typical deep dive into the technical posture of Caterpillar shares, let’s first assess the Dow Jones Industrial Average. Since CAT stock counts itself as one of the constituents of the famous Dow Jones, it is the most appropriate index to use in determining our overall outlook on big-cap industrials.

What Now, Dow?

Monday’s rebound was significant primarily because it allowed the Dow — shown below via the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) — to remain above its 50-day moving average. Chartists use this oft-watched smoothing mechanism as a proxy for the intermediate trend. Many view it as a line in the sand to determine whether a stock is bullish or bearish.

Friday’s testing of the average and Monday’s rebound helped keep DIA above the line and thus in bullish territory.

While some work remains before the Dow Jones Industrial Average fully recovers from its recent drop, this is as good a start as bulls could have hoped. Time will tell if the DJIA can rally above resistance to halt its short-term downtrend.

Not to toss cold water on Monday’s victory, but until then, you should view this rebound with some skepticism.

CAT Is a BEAST

The critical test that looms for Caterpillar stock is easily seen on the accompanying weekly chart. We have to go back to the twin peaks from 2010 and 2011 to identify the ceiling that is just now being retested. It has been a long time coming for the unfortunate souls who accumulated the stock near $116 back then. Now we see if demand is sufficient to finally send Caterpillar into record territory.

With the stock now firing on all cylinders, this is certainly as good a chance as any.

In case you’re curious, $116.95 is the official all-time high, so that’s the price to beat.

Since gapping higher on stellar earnings in late-July, CAT has been in digestion mode. The narrowness of the consolidation has been extreme and is a prime example of just how little volatility some stocks have seen of late.

But with Monday’s surge, that changed. Buyers scored their largest up candle since earnings, breaching resistance in the process.

This is about as clean a breakout pattern as you’ll ever see. Relative strength has accompanied Caterpillar’s ascent ever since March, making it one of the leading stocks in the Dow. I find it particularly impressive that the stock barely budged during the two large distribution days seen in the broader market this month.

Double Your Dough in CAT Stock

To capitalize on continued strength, buy the Oct $115/$120 bull call spread for $2.27. This strategy positions you to more than double your money if CAT stock can rise above $120 by expiration. The risk is limited to your initial investment of $2.27. The potential reward is $2.73.

To minimize the damage if the stock sours, consider exiting on a break of $112. A breach of that support zone would invalidate Monday’s breakout placing into question the strength of the overall uptrend.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.