2/26/19

The strong near-term setup is getting tested by Trump’s “maybe there’ll be no deal” (on China) statement yesterday, as well as on China’s followup comments which expressed a somewhat muted optimism. Neither commentary, however, suggests that there’s any credible growing threat to an ultimate deal, at this point. 


Despite the strong near-term underpinnings,  given the speed of the move off of the 12/24 low, traders might very well take any excuse to take some profit right here.


CAT is getting hammered in the pre-market on a downgrade to “sell” by UBS, with a price target of $125. They expect CAT’s primary end markets to peak this year, ultimately pressuring margins and revenue in 2020 – with construction sales falling 8%. This call would’ve seemed far more prescient had it come last year when industrial commodities, along with the BDI, were peaking. Today, with commodities rallying, the BDI carving out a bottom, China’s renewed stimulus, a likely end to the U.S./China trade dispute and the bipartisan support for U.S. infrastructure spending, not to mention this year’s huge anticipatory rally in our industrials ETF, one might think that a CAT position would make some sense right here.

Bottom line: While this morning’s selloff – amid yesterday’s slightly less-optimistic tone on trade and the *EU’s recent threat to immediately target the company if Trump slaps tariffs on auto imports – may not inspire any immediate buying, I wouldn’t be a seller of CAT just yet.

*Note: The implications of a U.S./EU trade war would be far more reaching than just their impact on Caterpillar.