This industrial giant continues to reach new heights. The charts suggest more gains lie ahead
Buying a stock at an all-time high is never easy. Human nature tells us we missed it. We fear that the easy money has already been made, and that a pullback must be right around the corner. But one of the hardest yet most common lessons investors learn is that strength often begets more strength. New highs are not a warning sign of a top, but confirmation of a trend. It demonstrates that institutions are accumulating shares and either a new leadership cycle has begun or an old one is continuing. That brings us to Caterpillar . This is a stock that’s been on fire. Shares are up 61% year to date and over 165% in the past 12 months. Many of us here at CNBC Pro have mentioned this stock before; it’s not a new idea. Josh Brown and Sean Russo wrote a great piece weeks ago, and I called it the “gold standard” in the AI build . When asked by my family and friends ‘what stock should I buy and put away’, this one tops the list and checks all boxes both fundamentally and technically. Fundamentally, the numbers tell the story. Demand remains strong, and CAT’s order backlog provides rare visibility for a company historically tied to economic cycles. Investors are rewarding a business that has expanded margins, improved profitability and positioned itself in front of secular tailwinds like AI power demand, reshoring, mining and infrastructure spending. Then there’s the eye test. Did you not see this photo from David Faber’s interview with Sam Altman ? That enormous Caterpillar excavator is all I could focus on during their conversation. There it was on full display for all to see. The company and its shareholders have become major beneficiaries of one of the biggest investment themes of this generation in the AI infrastructure buildout. Their engines, turbines, generators and heavy equipment sit directly in that supply chain. They are the literal “picks and shovels.” Yet, I am here to provide ideas from a technical perspective. Short-term view This chart is glorious and the trend is magnificent. Hence the question, do we buy at all-time highs? The technicals say yes, and here are a few reasons why. Zooming in on a daily chart going back to its April lows and subsequent gap, we see a compelling triangular formation between two important anchored VWAP’s and now a breakout. First, this breakout is resolving in the direction of the primary trend. This is a classic continuation pattern. We can calculate upside targets based on the key gaps along the way. The first target is to count from the secondary gap of $820 to its former peak of $920, add that to the breakout level and we reach a target of $1,020. An even more aggressive target would be to take our count from $720 where we see the initial gap of this breakout, and the bottom of the larger triangle, to get a target near $1,080. We also use VWAP levels anchored to those key moments. In this case, the initial gap as well as the recent peak. Those VWAP levels tend to and have acted as near-term support and resistance and now we see the breakout and wait for confirmation over the coming days. Lastly, momentum is also turning positive as a potential bullish MACD crossover buy signal is on the verge of being triggered. Long-term view Now that shares are in uncharted territory where traditional resistance levels disappear, we use longer timeframes for perspective. In this case we go to the weekly chart and turn to Fibonacci extensions as they can become a valuable roadmap. By measuring the size of the prior advance and projecting it beyond the breakout point, technicians can identify potential upside targets where momentum may eventually pause. We use the “liberation day” low as our starting point of significance and the stock’s breakout back to new highs on that recovery as our guide. The first major Fibonacci extension is typically the 161.8% level, better known as the famous “golden ratio” used by traders for decades. When strong companies break out of long bases these extensions often become magnets rather than ceilings. Applying that framework to Caterpillar’s previous trading range created upside objectives. Each leg higher has seen each extension level hit methodically. As shares trade beyond today’s levels, we look for the next extension to suggest where this move may take us. Expect the normal daily ebbs and flow along the way as it moves higher, but new support and resistance levels can be seen using these Fibonacci levels. They are great at helping the shorter-term trader manage risk while guiding the long-term holder as to its next achievable goal. The trend is our friend as great stocks often look expensive before they become even more expensive. The hardest trade is sometimes buying the name everyone thinks they missed. The same company that helped build highways and cities for a century is now helping build the backbone of the next industrial boom. Caterpillar is hitting new highs for a reason, and this industrial giant may still have a lot more digging to do. Jay Woods, CMT with Chase Games DISCLOSURES: Woods and his family own CAT. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
