Dow component Caterpillar Inc. (CAT) has struggled so far in 2019, losing ground in reaction to the escalating trade war with China. The company has been vulnerable to the ups and downs of the Asian giant for the past 15 years, benefiting from an enormous infrastructure build-out that slowed down after 2012. The seesaw ride since that time has been stomach-churning for shareholders, with 2016's six-year low followed by 2018's all-time high.

Caterpillar stock has dropped into the 26th slot in Dow component performance, falling 7% since the first trading day of 2019. It sold off within six points of October 2018's 14-month low at $102 on Monday, marking the next stage of a critical test that could formally end the stock's three-year uptrend. Accumulation-distribution readings have already posted lower 2019 lows, raising the odds that bulls will fail to make a last stand at that support level.

CAT Long-Term Chart (1991 – 2019)

Long-term chart showing the share price performance of Caterpillar Inc. (CAT)
TradingView.com

The stock tested five-year support at a split-adjusted $4.70 in 1992 and turned sharply higher, entering a powerful uptrend that unfolded in two broad rally waves into the 1997 high at $30.82. Breakout attempts in 1998 and 1999 failed, yielding a steep downturn that found support at a four-year low in the mid-teens in 2000. The stock failed another breakout attempt in 2002 and successfully tested the 2000 low six months later.

A 2003 breakout gained traction, posting impressive gains throughout the mid-decade bull market. The uptrend stalled in the low $80s in 2006, yielding failed 2007 and 2008 breakout attempt, ahead of a massive breakdown during the economic collapse. Caterpillar shares fell more than 70% into the March 2009 low, but the subsequent recovery wave was equally dynamic, completing a round trip into the prior high in just 18 months.

A 2011 breakout stalled at $116 at the same time that commodities were topping out all over the world. The stock tested that high in 2012 and turned lower, trading in a 25- to 30-point range into a 2015 breakdown that hit a six-year low in the $50s in the first quarter of 2016. A steady uptick reached 2012 resistance in the summer of 2017, yielding an immediate breakout, ahead of January 2018's all-time high at $173.24.

The decline into December 2018 found support at the 2017 breakout, while the bounce into April 2019 ended at the 50% sell-off retracement level above $140. The monthly stochastics oscillator entered a buy cycle in July 2018 that is still in force 13 months later, but the stock has actually lost ground during this period. The divergence suggests that May's mid-range bearish crossover will control price action through the summer months.

CAT Short-Term Chart (2016 – 2019)

Short-term chart showing the share price performance of Caterpillar Inc. (CAT)
TradingView.com

A Fibonacci grid stretched across the 2016 into 2018 uptrend places the 2017 breakout at the 50% retracement level, with a breakdown exposing $100 and $80. This week's partial tariff delay into December could keep a floor under Caterpillar stock until that time, with smart bears keeping their powder dry while the next wave of trade deal speculation and manipulation makes the rounds.

The descending trendline of lower highs (red line) should be watched closely during this period because it indicates that oversold rallies should fail between $130 and $140. The on-balance volume (OBV) accumulation-distribution indicator is matching this pattern (black line), with breakouts in price and volume tilting the long-term outlook in favor of bulls while setting the stage for a test at the 2018 high.

The Bottom Line

Caterpillar stock traded within six points of the 2018 low on Monday, but tariff delays should keep a trading floor under the stock into the fourth quarter.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.