Caterpillar Inc. (CAT) shares rose nearly 5% on Tuesday after the company reported strong quarterly financial results. Third quarter revenue jumped 24.5% to $11.4 billion – beating consensus estimates by $770 million – and earnings per share rose to $1.95, which exceeded consensus estimates by 68 cents per share. Management also increased its full-year outlook to $44 billion in revenue – at the high end of estimates – and $6.25 per share in net income.

Analysts responded by increasing their price targets on the stock. Melius Research increased its price target to $172 from $168, citing further outperformance as revenues appear likely to overshoot. CFRA also increased its price target to $180 from $140, saying that Caterpillar remains well positioned for an improving global economy, with significant operating leverage on accelerating top-line growth. (See also: Do Fundamentals Support Caterpillar's Big Gains?)

Technical chart showing the performance of Caterpillar, Inc. (CAT) stock

From a technical standpoint, the stock broke out from upper trendline resistance to fresh all-time highs this week before consolidating on Wednesday. The relative strength index (RSI) has traded at overbought levels since mid-September, but third quarter financial results pushed it even further into overbought territory. The positive news for the stock is that the moving average convergence divergence (MACD) remains in a robust bullish uptrend.

Traders should watch for consolidation above trendline support at around $135 before any further move higher. If the stock breaks down from these levels, it could reach the middle of its previous price channel near R2 support at $130.52 or the lower end of the price channel at R1 support of $127.25. Traders should maintain a medium-term bullish bias on the stock given the favorable financial results, but the high RSI reading could suggest consolidation ahead. (For more, see: Why the Dow's Best-Peforming Stock May Rise Higher.)

Chart courtesy of The author holds no position in the stock(s) mentioned except through passively managed index funds. 

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