Caterpillar Reports Earnings Above Key Levels

Earth-moving giant Caterpillar Inc. (CAT) is a component of the Dow Jones Industrial Average. As Carole King sang, "I feel the earth move under my feet," this could become a common sensation during any infrastructure plans, and 300 of Caterpillar's machines will see demand if those plans come to fruition. The company is due to report first quarter earnings before the open on April 24.

Caterpillar stock closed Friday at $153.25, down 2.7% year to date and in correction territory at 11.5% below its 2018 high of $173.24 set on Jan. 16. The stock set its 2018 low of $138.05 on April 4. The Dow 30 is down 1% year to date and is 8.1% below its all-time high set on Jan. 26.

Analysts expect Caterpillar to deliver earnings per share of $2.08 when it reports first quarter earnings on Tuesday. The mining and construction equipment giant has exceeded revenue estimates in each quarter of 2017. Improved earnings can be attributed to growth in the construction industry and cost-control measures. (See also: Caterpillar Stock Sets Off Buying Signals.)

The daily chart for Caterpillar

The daily chart for Caterpillar shows that the stock moved above its 50-day simple moving average of $152.00 last week. The stock is well above its 200-day simple moving average of $138.23. The horizontal lines, which came into play over the past seven trading sessions, are my annual and quarterly pivots at $150.14 and $153.37, respectively.

[If you'd like to learn more about using moving averages to analyze stock charts, check out Chapter 2 of the Technical Analysis course on the Investopedia Academy]

The weekly chart for Caterpillar

The weekly chart for Caterpillar is positive, with the stock above its five-week modified moving average of $151.04. The stock is well above its 200-week simple moving average at $96.98, which is "reversion to the mean," last tested at $86.07 during the week of Nov. 11, 2016. The 12x3x3 weekly slow stochastic reading rose to 28.39 last week, up from 25.35 on April 13. When the stock was trading at its all-time high of $173.24 during the week of Jan. 19, its stochastic reading was above 90.00 on a scale of 00.00 to 100.00, making it an "inflating parabolic bubble," which popped as expected.

Given these charts and analysis, my trading strategy is to buy Caterpillar shares on weakness to the 200-day simple moving average, which is rising each day at $138.23, and to reduce holdings on strength to my monthly risky level of $172.40. (For more, see: Caterpillar: 6 Things You May Not Know.)