Caterpillar Price Outlook

Caterpillar Inc, (CAT), the giant manufacturer of construction and mining equipment as well as seller of power engines and diesel-electric locomotives is due to announce earnings on Wednesday at 12:30 ET (17:30 BST). Q3 earnings per share are expected at $1.67, a 34% decline from the same period last year.

Down 6% year-to-date and underperforming the Dow Industrial’s 15% so far this year, Caterpillar is one of the two companies in the index to be negative for the year – alongside International Business Machines, (IBM). The bulk of the year’s price decline was sustained in Q1 as the collapse in gold prices weighed on commodities. Worries of a hard landing in China also impacted Caterpillar earnings.

The mining slowdown may have proven to be a temporary pause within a long-term supercycle. Construction in the US remains stable while manufacturing indices in China (official and private measures) continue to expand from this year’s earlier contraction. As long as the stabilization of financial markets in EM translates into macroeconomic robustness, CAT’s construction equipment business can regain its prior levels as it delivers over 15% of the companies’ earnings.

Technically, CAT’s stock price reflects the positive combination of having just breached both of its 55 and 200-week moving averages, as well as its 20-month trendline resistance. The daily chart shows a breach above its 200-DMA, which may ominously appear similar to the failed breach from September and July of this year. But the monthly chart reveals a powerful set of positive dynamics, suggesting the break above the 91.00 barrier is a matter of time before the 99.80 target ensues near year-end. Support extends near 83.00, along its 100-DMA.

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