Caterpillar Inc. (CAT) reported third-quarter results here on Thursday that handily beat expectations on the top and bottom lines. Caterpillar's stock price is sharply higher in pre-market activity and should open Thursday's trading with a gap to the upside, so let's check the charts of the heavy equipment maker to see if the rally can power higher or if overhead resistance will prove to be a problem.
In this daily bar chart of CAT, below, we can see the price action through Wednesday's close. Prices are trading around 5% higher ahead of Thursday's opening. CAT is likely to gap up above the 200-day moving average line and above the August highs. The trading volume has increased from the middle of September and the On-Balance-Volume (OBV) line has turned upward in October to signal that buyers of CAT have turned more aggressive. The Moving Average Convergence Divergence (MACD) is bullish with its recent cross above the zero line.
In this weekly Japanese candlestick chart of CAT, below, we can see the past three years of price movement. Overall the chart is OK but not what I would consider a strong buy. Prices should open above the declining 40-week moving average line. Overhead chart resistance is likely to be encountered on approach to the $220 area. The latest candle is bullish, but candles can be quick-turning and traders need to be alert for reversals. The OBV line shows improvement from late September. The MACD oscillator has crossed upward for a cover shorts buy signal. An outright buy message will take time.
In this daily Point and Figure chart of CAT, below, we can see a potential upside price target in the $245 area.
In this weekly Point and Figure chart of CAT, below, we can see a potential target in the $278 area.
Bottom line strategy: In my Sept. 28 review of CAT I only saw a bounce potential for CAT, but now the chart is stronger looking. Let CAT correct for a few days before approaching the long side.
