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Should You Buy Caterpillar (CAT) After Golden Cross?

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Caterpillar Inc. (CAT - Free Report) is looking like an interesting pick from a technical perspective, as the company reached a key level of support. Recently, CAT's 50-day simple moving average crossed above its 200-day simple moving average, known as a "golden cross."

There's a reason traders love a golden cross -- it's a technical chart pattern that can indicate a bullish breakout is on the horizon. This kind of crossover is formed when a stock's short-term moving average breaks above a longer-term moving average. Typically, a golden cross involves the 50-day and the 200-day moving averages, since bigger time periods tend to form stronger breakouts.

There are three stages to a golden cross. First, there must be a downtrend in a stock's price that eventually bottoms out. Then, the stock's shorter moving average crosses over its longer moving average, triggering a positive trend reversal. The third stage is when a stock continues the upward momentum to higher prices.

This kind of chart pattern is the opposite of a death cross, which is a technical event that suggests future bearish price movement.

Shares of CAT have been moving higher over the past four weeks, up 7.3%. Plus, the company is currently a #2 (Buy) on the Zacks Rank, suggesting that CAT could be poised for a breakout.

Looking at CAT's earnings expectations, investors will be even more convinced of the bullish uptrend. For the current quarter, there have been 12 changes higher compared to none lower over the past 60 days, and the Zacks Consensus Estimate has moved up as well.

Moving Average Chart for CAT

Investors should think about putting CAT on their watchlist given the ultra-important technical indicator and positive move in earnings estimates.


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