Naughty Kitty; Caterpillar

Industrial machinery giant Caterpillar (CAT) reported a drop in its second-quarter profit, which coupled with the company’s outlook weighted on the stock yesterday.  The stock’s quarterly profit declined to $960 million versus a profit of $1.70 billion  in the year-ago period.  Revenue dropped to $14.62 billion from $17.34 billion, which came short of analyst estimates of revenue of $15.09 billion.  Likely more concerning to investors, at least in the near-term and as an initial reaction is the company’s outlook.  Caterpillar expects full-year 2013 revenue of $56 billion to $58 billion, which is short of its earlier forecast of $57 billion to $61 billion.  Furthermore, the company cited weak global growth as a theme for coming years, which given the company’s global reach is something to take note of.  The company also didn’t have anything particularly rosy to say about Europe, which differs from what other companies such as General Electric (GE) had to say last week.

On the multi-year chart looking back to the 2009 lows, note that after a massive rally the stock formed a double top with highs in April 2011 and a re-test of those highs in February 2012.  Ever since the February 2012 highs the stock has developed a series of lower highs within the context of a crucial up-sloping support line that currently sits around the $82.00 area.  Also note that the stock’s 200 week simple moving average (red dotted line) converges somewhere around that area and a significant close below there would thus constitute a break of major support.

cat multi year

On the daily chart, Caterpillar (CAT) is developing a head and shoulders pattern with a clearly defined neckline at the $80.00 level.  While I am not a huge fan of head and shoulders patterns that stretch for more than a few weeks, the stock just last week developed another lower high that may just lead the stock to gain downside momentum toward the $80 mark as a next leg lower before a bigger test of support comes up.
cat daily

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