Caterpillar Inc. (CAT) is set to report quarterly earnings before the opening bell on Wednesday, April 24, after the stock confirmed a "golden cross" on its daily chart on April 15 and as its weekly chart becomes overbought. Shares of the heavy equipment manufacturer closed Monday, April 22, at $142.38, up 12.4% year to date and in bull market territory at 27.1% above the Oct. 29 low of $112.06. The stock is also in correction territory at 11.9% below its 52-week high of $161.60 set on May 21, 2018.

Factors influencing earnings include global considerations of a trade war, tariffs, weaker worldwide economic growth and unfavorable currency conversions. The stock is reasonably priced with a P/E ratio of 12.80 and a dividend yield of 2.40%, according to Macrotrends. The S&P 500 has a market multiple of 17.6, which is elevated in my judgment.

Analysts expect the construction and earth-moving equipment maker to report earnings per share between $2.84 and $2.95 when it releases results on Wednesday. Its prior earnings report was released on Jan. 28, and the company missed on the top line, ending a 10-quarter winning streak. At the end of 2018, the company had a $16.5 billion backlog in orders. Its machinery, energy and transportation segment is the largest division to keep an eye on. Mining and construction equipment sales should do better given some infrastructure spending initiatives.

The daily chart for Caterpillar

Daily technical chart showing the share price performance of Caterpillar Inc. (CAT)
Refinitiv XENITH

The daily for Caterpillar shows that the stock formed a "golden cross" on April 15, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices would follow.

The stock closed 2018 at $127.07, which was an important input to my proprietary analytics. The results include an annual value level at $114.11 and a semiannual value level at $125.40, which provided a buying opportunity in January. The close of $132.37 on March 29 was the latest important input to my analytics, resulting in a monthly value level for April at $126.62 and a quarterly risky level above the chart at $179.09.

The weekly chart for Caterpillar 

Weekly technical chart showing the share price performance of Caterpillar Inc. (CAT)
Refinitiv XENITH

The weekly chart for Caterpillar is positive but overbought, with the stock above its five-week modified moving average of $138.55. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $108.76. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 81.85 this week, rising above the overbought threshold of 80.00. 

Trading strategy: Buy Caterpillar shares on weakness to the 200-day simple moving average at $135.26 and add to positions on weakness to monthly and semiannual value levels at $126.62 and $125.40, respectively. Reduce holdings on strength to my quarterly risky level of $179.09.    

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.