Caterpillar Inc. (CAT) shares fell more than 10% on Tuesday morning after the company reported better-than-expected third quarter financial results. Revenue rose 18.4% to $13.5 billion – beating consensus estimates by $240 million – and net income of $2.86 per share beat consensus estimates by two cents per share. Despite the strong results, the company maintained its full-year outlook on adjusted profit per share.
Caterpillar's decline contributed to a sharp fall in the Dow Jones Industrial Average, which dropped more than 2% shortly after the market opened. While Caterpillar surpassed earnings expectations, 3M Company (MMM) reported below-consensus top- and bottom-line financial results and lowered its earnings guidance, which accelerated the Dow's sell-off.
From a technical standpoint, Caterpillar stock broke down from a bearish double top pattern last week before breaking below S2 support at $127.44 on Tuesday. The relative strength index (RSI) appears extremely oversold with a reading of 17.86, but the moving average convergence divergence (MACD) remains in an accelerating bearish downtrend that could signal further downside ahead.
Traders should watch for some consolidation following Tuesday's decline given the oversold RSI readings, but the intermediate-term trend is likely to remain bearish. The next major area of support is at around $95.00, where the stock consolidated during early 2017. If the stock rebounds back above S2 support, traders could see a move higher to retest S1 support and re-enter the previous price channel.
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.