70% Drop In Profits Sends Caterpillar Share Price Sliding

Caterpillar stock price is lower today after the company’s 2nd quarter earnings report showed that revenues and profits were down by 31% and 70.3% respectively. The company has blamed the coronavirus pandemic for the drop-off in profits and revenues. However, the earnings came out higher than market expectations, as the lower manufacturing costs helped to offset the loss of demand for heavy equipment as the coronavirus pandemic shuttered construction businesses worldwide. 

The company failed to reinstate its provision of forward guidance, which was suspended in March at the height of the uncertainty about the toll the coronavirus pandemic would have on its businesses. 

Caterpillar stock is now trading at 130.88, down 4.26% on the day. 

Technical Outlook for Caterpillar Stock

Today’s candle has breached the lower border of the large rising wedge pattern on the daily chart. Confirmation of the breakdown needs to come from two successive daily closing penetrations below the wedge pattern. If this confirmation comes through, Caterpillar stock price could target the 124.38 support level but must overcome the pitstop at 129.33 first. 118.06 (lows of 6 April and 1/15 June) completes the measured move from the breakdown of the wedge. 

On the flip side, we could see a push towards the 140.18 price level, if the price bounces off 129.33 or fails to complete the breakdown of the wedge, whichever comes first. A move above 145.27 restores higher highs on the stock, invalidating the pattern in the process. 

The future direction of Caterpillar’s stock price near-term depends on whether investors see the earnings result as one which is better than nothing (a half-full glass), or one whose profit drop is a cross that is too heavy to bear at the moment (a half-empty glass).

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Caterpillar Stock Price Chart (daily)

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