Stock Of The Day: Is Caterpillar About To Rally?

Caterpillar Inc. CAT is rebounding on Friday. The stock was down almost 2.5% yesterday after the company posted a disappointing earnings report.

There is a good chance this rebound will continue. This is why Caterpillar is the Stock of the Day.

As you can see on the chart, the shares rallied after finding support around the $349 level in January.

There was support at this price for a reason. It was a resistance level in July and September 2024, and resistance can turn into support. It is a common occurrence in the financial markets.

It's because of seller's remorse.

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Some of the traders and investors who sold around $349 regretted doing so when the resistance broke and the price moved higher. A number of them decided to buy their shares back if they could do so at the same prices they sold them.

When the stock dropped back to this price in January, they placed buy orders. There were so many of these orders that they caused support to form.

Stocks can rally after reaching support because of anxious buyers. Some of the people who created the support became concerned that other traders would outbid them.

They know the sellers would go to whoever is willing to pay the highest price. They don't want to miss the trade, so they increase their bid prices. Other concerned buyers see this and do the same.

It results in a bidding war that can push the price up.

Now, Caterpillar is in a similar situation as it was in January. Yesterday, the shares found support around $408. This level was resistance in November and January, and now it is support.

If history repeats itself — and it tends to in the stock market — there is a good chance that Caterpillar rallies off of support again.

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