Caterpillar helps Dow Jones buck tide at start of eventful week

Caterpillar (CAT) is moving higher on Monday in sharp contrast to the wider market. The NASDAQ and S&P 500 sold off on Monday morning, while Caterpillar and a number of other Dow Jones index stocks gained ground. The Dow, in fact, reached yet another all-time high at 41,420 on Monday, following last week's decent Dow performance.

US Durable Goods Orders surprised to the upside on Monday as July orders of $289.6 billion rose nearly 10% above the June figure and outperformed the consensus of 4%.

It’s the last week of major second-quarter earnings, and many traders are tightly focused but nervous about Nvidia’s (NVDA) results come Wednesday. However, the likes of Lululemon (LULU), CrowdStrike (CRWD), Dell Technologies (DELL), Ulta Beauty (ULTA), Salesforce (CRM), Dollar General (DG) and Marvell Technology (MRVL) will also turn heads in the final week of the summer.

Caterpillar stock news

The Durable Goods Orders data helped Caterpillar despite persuading tech stocks to sell off. The basic premise is that better economic data makes it less likely that the Federal Reserve (Fed) will cut interest rates at a faster rate.

Fed Chair Jerome Powell all but promised a cut at the September meeting last week during his Jackson Hole speech, so the market is simply debating whether the first cut will be 50 bps or 25 bps. Since tech stocks are more reliant on interest rates for their valuations, this news is startling growth stocks, while industrials like Caterpillar who sell durable goods look more attractive.

This latest data confirms last week’s announcement from the Equipment Leasing & Finance Association that US corporations increased their borrowing to purchase equipment by 14% YoY in July.

The Monthly Confidence Index for the Equipment Finance Industry rose from 50.7 in July to 58.4 in August, which was the highest level since February 2022.

"We’re expecting economic conditions for businesses to improve over the next six months as interest rates decline and investment in US manufacturing continues to grow, which in turn will lead to rising demand for funding to complete capex projects,” said Jeff Elliott, president of Huntington Equipment Finance, in a statement that accompanied the data.

It seems hedge funds were ahead of the news this time as Bank of America Securities noted recently that while keeping their active equity positions roughly the same in July, long-only funds cut investments in tech and consumer discretionary to plough more than $30 billion into industrials that month.

Caterpillar stock chart

Caterpillar stock is trading inside a widening wedge pattern, which may worry some traders from joining the current rally that has taken place since August 5. Now back above the 50-day Simple Moving Average (SMA), the high momentum observed in the rising Relative Strength Index (RSI) makes it likely that bulls will stage a retest of the overhead supply zone spanning $362 to $369. This region ended recoveries in April, May and July. 

Bulls may need to see the 50-day SMA overtake the 100-day SMA, which is one bearish sign on the current daily chart.

On the downside, the 200-day SMA is rising near $322, while the descending lower trendline moves toward the $300 psychological level. Both levels will be looked to for support.

CAT daily stock chart