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Two Ways: Caterpillar Earnings Unlikely to Make the Earth Move


Strengthen your portfolio in good times and bad.

Second-quarter earnings from Caterpillar (CAT) are on the table for tomorrow morning. According to, Wall Street is expecting the world's biggest maker of earth-moving equipment to post net income of $0.22 a share on revenues of $8.8 billion.

Last quarter, Caterpillar issued downside guidance for its 2009 fiscal year. It expected to earn $1.25 a share, which was far below expectations of $1.75. But some analysts aren't expecting better news out of Caterpillar now, since the global economy hasn't shown too much of an improvement since the first quarter. Manufacturing remained weak, while banks were still reluctant to lend.

Furthermore, instead of actually looking for growth, investors will focus on "less bad" data, seeing if Caterpillar was able to cut costs while maintaining pricing.

From the Bull Pen: Caterpillar's earnings will be very important to the broader markets. But bulls can also take a look at the Dow Transportation Index, or the trannies, for other signs of bovine life. See the potential triple top at 3400, which usually doesn't hold. One can consider using the ETF (IYT), starting a small position here, and adding on a pullback toward $56-55. Sell stops can be set below $53.

Click here to enlarge.

From the Bear Cave: If you believe the end of the recession is near, and the carry trades will be put back on, consider playing the downside in the yen ETF (FXY). A buy stop can be set above recent highs, at $108.
No positions in stocks mentioned.

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