Caterpillar Stock Whipsaws After Commentary Outweighs Guidance

Caterpillar Inc. (CAT) shares moved more than 6% lower on Tuesday in a volatile session. After the company reported record first quarter profit, shares soared nearly 5% in early trading until the conference call mid-day. Management indicated on the conference call that the first quarter was a "high water mark for the year," which sent shares tumbling sharply lower to close more than 6% to the downside.

During the first quarter, revenue rose 31.4% to $12.9 billion – beating consensus estimates by $970 million – while earnings per share of $2.82 beat consensus estimates by 75 cents per share. The company boosted its profit outlook for 2018 by $2.00 per share to a range of $10.25 to $11.25 per share, citing growing demand for products and services across its business units. (See also: Buy Caterpillar on Improvements in China: Citi.)

From a technical standpoint, the stock briefly broke above R1 resistance at $155.82 to about $160.00 before moving sharply lower below pivot point support at $149.36 and trendline support at $147.50. The relative strength index (RSI) remains in neutral territory with a reading of 42.05, but the moving average convergence divergence (MACD) could see a near-term bearish crossover. These indicators suggest that there could be more downside ahead.

[Learn more about supplemental technical indicators like the RSI and the MACD in Chapter 4 of the Technical Analysis course on the Investopedia Academy]

Traders should watch for a move lower to S1 support at $140.19 or trendline and 200-day moving average support at $137.29. If the stock breaks out above trendline resistance, traders should look for a rebound to the pivot point or 50-day moving average at around $150.00. The bearish fundamental news suggests that traders should watch for the price to be range bound between trendline support and resistance at $137.30 and $147.50. (For more, see: Caterpillar: 6 Things You May Not Know.)

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