China growth fears spurred a short-lived risk aversion wave on Wall Street last week, but like all of the recent sell-offs, this one was also short-lived and welcomed by bargain buyers. Corporate earnings are now at the center of attention as investors are reading beyond the quarterly numbers in search of insights about the global economic outlook ahead of Friday’s much-awaited US GDP report.
Amid the ongoing tug-of-war between the bulls and bears, mining and construction equipment manufacturer Caterpillar
(NYSE:CAT) presents an intriguing opportunity at the moment that warrants a closer look from traders looking to get a piece of the bull market.
Consider Caterpillar’s one-year daily performance chart below. This stock has endured a choppy trading pattern over the last year while broad US equity indexes have enjoyed stellar gains; note how shares of CAT have been steadily sinking year-to-date while the S&P 500 Index
(INDEXSP:.INX) has climbed relentlessly higher and is now trading near all-time highs. CAT’s decline isn’t all bad news, however, as the chart below suggests that brighter days may be on the horizon; notice how this stock managed to hold above $80 a share (red line), which is a key support level that it has previously rebounded off, as seen in late July, early September and mid-November of 2012.
Click to enlarge
Not only has CAT consistently held above $80 a share over the last year, the stock has also managed to post higher-highs after each rebound (blue line); this suggests that there is lucrative upside potential, assuming its longer-term technical pattern remains intact. Furthermore, despite missing the earnings mark earlier this week, above-average buying volumes still bolstered CAT higher, adding more weight to our bullish suspicions for this stock.
CAT is a bargain buy at current levels, but caution should be exercised when entering into a long position because this stock is still stuck in a longer-term downtrend. From a technical perspective, this stock has major support around $80 a share; in terms of upside, CAT could face selling pressures as it nears the $90 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
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Editor's note: This article by Stoyan Bojinov was originally published on Commodity HQ.
No positions in stocks mentioned.