Caterpillar Stock in Trouble After Sour Earnings (CAT)
The manufacturer of construction equipment is slashing 20,000 more jobs after reporting yesterday that fourth-quarter profit dropped 32 percent due to the global economic slowdown. This as a result sent Caterpillar (CAT) shares sinking 8.3% in heavy volume trade. The stock is down over 30% since January 2nd.
Technically speaking Caterpillar stock retested its critical $32 support line after posting its largest volume day in over a year trading just over 47 million shares.
By observing the chart below we can see more clearly the recent price action that has allowed bears to take complete control of the stock.
Two key failures can be seen with Caterpillar stock above:
1. After trading in a defined horizontal channel throughout December CAT broke above $45 but within three days had fallen back on high volume.
2. From here CAT raced down to test $40 support and fell through to create a very narrow channel between $38 – $40. This channel lying just under its 50 day moving average broke down last Thursday on heavier distribution volume. Friday and yesterday with earnings showed increasing volume both days as the stock tumbled down to $32 support.
Looking ahead Caterpillar stock is in trouble.
The 50 day moving average is beginning to downtrend once again and $32 support has now been tested twice since being established last October. Investors may see the stock settle in the $32 – $35 range in the short term but a close under $32 should send the stock down to 2003 highs of around $27.
Unless trading intraday price swings Caterpillar is not a place for any long term investor.
