Caterpillar Inc. (CAT) is trading lower in pre-market activity in reaction to disappointing second-quarter earnings of $2.83 per share versus expectations of $3.12. The full-year EPS outlook was maintained, but the company expects to be at the lower end of the range. Prices are lower off the bat Wednesday so we will need to use our imagination until our charts update.
In the daily bar chart of CAT, below, we can see that prices traded sideways since November. The most recent rally from early June has stalled around $140 or just below the peaks of February and April. Prices are above the declining 200-day moving average line and the bottoming 50-day line but that could change if Wednesday's early decline continues.
The volume bars do not signal any clues but the On-Balance-Volume (OBV) line has been flat this month, telling me that positions were neutral ahead of the earnings report. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line but it is likely to cross to the downside for a new sell signal.
In the weekly bar chart of CAT, below, we can see that prices made a peak or zenith back in late 2017. The 40-week moving average line has had a negative slope for the past year.
The weekly OBV line shows a rise from October, suggesting that longs have been accumulated, which could mean that these recent buyers could be pressured to exit. The MACD oscillator looks like it will turn down again from the zero line.
In this Point and Figure chart of CAT, below, we can see an upside price target of $176 but if the stock trades down to $131.30 the software should reverse gears and generate a bearish target.
Bottom-line strategy: CAT should be on the defense Wednesday. A close below $130 will break the moving averages and we could see a retest of the June low around $120 in the weeks ahead.