Shares of Caterpillar (NYSE:CAT) are roughly 15% off their January 2018 highs and through this lens still making lower highs. Following the company’s earnings report earlier this week the stock now looks ripe to continue its slide lower … offering active investors and traders an opportunity.
Caterpillar’s earnings report for Q2 beat analyst expectations on both the top and bottom line. The company also said that it will continue buying back stock in the second half of 2018 roughly at the same rate it did in the first half. Just recently the company gave the blessing on a further $10 billion.
None of that, however, was good enough and the stock on Monday closed lower on the day.
CAT Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Starting off with the multiyear weekly chart, we see that CAT stock continues to hold on to its simple trend line off the early 2016 lows. At the same time, however, the stock’s choppy downward trajectory since early this year is undeniable. The stock remains within a bigger-picture consolidation range but has broken below its yellow 50-week simple moving average for the first time since 2016.
From this angle the stock is no screaming sell … at least not yet.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
But this now brings us to the daily chart. As I always say, trading and investing is all about understanding one’s time frame. A day trader can swing in any which direction with more or less complete disregard as to the intermediate-term or longer-term picture. A swing trader (days to weeks in duration) will want to be aware of the bigger picture, but the intraday choppiness is marginally important. Swing traders care about trades/charts on a daily closing basis.
Looking at the daily chart, we see that CAT stock in June broke below its red 200-day simple moving average as well as below simple horizontal support … which may now become resistance.
Also note that just above, in the mid-to-high $140’s, is a confluence layer of resistance made up of not only the 200-day but also the 50- and 100-day moving averages.
Given all of this technical resistance as well as the failed intraday rally on July 30 following the earnings report, the stock now looks ripe lower toward a first profit target near $133 and possibly followed by $130 … for now. Any strong bearish reversal — and in worst case, a break above $148 — would be a clear stop-loss signal.
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