U.S. Markets closed

Could CAT Stock's Chart Break Down Soon?

Josh Selway

Caterpillar Inc. (NYSE:CAT) has enjoyed a series of higher highs and lows since its October bottom near $112, riding technical support atop the 80-day moving average to trade at $141.70. However, new data suggests CAT stock could due for some short-term turbulence, especially with earnings set to hit next Wednesday, April 24.

Specifically, historical returns from Schaeffer's Senior Quantitative Analyst Rocky White tells us the 320-day moving average should be worrisome for those bullish on the blue-chip industrial name. You can see on the chart below how clearly this trendline has switched from support to resistance. In fact, the prior three run-ups to this moving average have produced an average one-month loss of 7.2% for the shares.

cat

Traders may also be concerned about the upcoming earnings release for CAT, considering how the last year's worth of reports have turned out. Last quarter, Caterpillar shares fell 9.1% the day after reporting, which followed one-day post-earnings losses of 7.6%, 2%, and 6.2% over the previous three quarters.

Those wanting to take the opposite view on the equity could point out the huge build-up of call open interest at the soon-to-expire April 145 call. Clearing out this overhead options open interest could make it easier for the security to make its way up the charts.

Bullish or bearish, it may not be too late to make a speculative pre-earnings bet on CAT. For instance, the options market right now isn't pricing in unusually high volatility expectations, expecting a 5.2% swing the for the day after earnings, which is right in line with the average 5.5% move from the past two years for the stock. What's more, Caterpillar's 30-day at-the-money implied volatility of 28.8% ranks in the middling 50th annual percentile. So while near-term contracts aren't attracting what could be seen as "cheap" premiums, they also aren't seeing the sharp rise in implied volatility we often see with roughly a week left before earnings.