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Chart: Caterpillar digs hole for world economy

When it comes to earthmoving, Cats are iconic.

The yellow Caterpillar brand continues to dominate earthmoving project works throughout the world. When I was building roads 35 years ago Caterpillar was the plant equipment of choice. It remains so now which is why the decline in the Caterpillar price from $105 to around $65 is significant in more ways than just for Caterpillar shareholders.

Caterpillar is the perfect proxy for the infrastructure build required to sustain the world economy. When economies are booming, Caterpillar is climbing. The sustained fall in Caterpillar prices indicates a sustained fall in infrastructure investment. This is not just greenfield investment in new infrastructure, road, and mining projects. It's also a decline in brownfields investment in the renewal of ageing infrastructure.

The key support level for Caterpillar is near $77. Early in 2015 this was a support level. In July the price slipped below support and then staged a weak recovery in August. After that the story is all on the downside.

The chart does not provide a method to calculate the next downside target and the potential support level. The dominant downtrend starts from the highs in June. The downtrend has been tested as a resistance level several times and proved to be very powerful. This tells us that even if Caterpillar was able to reverse the downtrend then there are two significant resistance levels. The first barrier is the downtrend line currently near $72. The second is the long term resistance level near $77. It's difficult for a trend reversal to succeed when it faces multiple resistance levels.

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On the downside, the story is worse. We need to use a monthly chart and go back to 1999 to 2005 to find long term support. It's around $30. This was a level last seen in 2009. There is limited support round $70 but current price activity shows no sign of consolidation in this area.

Caterpillar machinery will continue to be the favorite among earthmovers, but it's a screaming short for traders and a poison pill for investors. It's doubtful if its on the list of Yellen economic indicators, but it should be. The collapse in the Caterpillar price shows a world economy that is slowing, not growing.

Daryl Guppy is a trader and author of Trend Trading: The 36 Strategies of the Chinese for Financial Traders, available at www.guppytraders.com. He is a regular guest on CNBC Asia's Squawk Box and a speaker at trading conferences in China, Asia, Australia and Europe.