One Dow stock trapped in the trade war crossfire looks like a buy

Dow Jones industrial average heavyweight Caterpillar is flirting with bear market territory this week as the U.S. ratchets up trade tensions with China. This too shall pass, says one Caterpillar bull.

"I think Cat is a buying opportunity," Rich Ross, head of technical analysis at Evercore, told CNBC's "Trading Nation" on Tuesday.

Caterpillar is one of more than half of Dow components in the red for the year. Its shares took a steep nosedive over the past week, putting them on track for a more than 6 percent drop for June.

"Admittedly, first break below the 200-day moving average in just about two years, that's not great," conceded Ross. "It's not bullish per se, but it's not a death knell either. You're still sitting on key support around $141, $142."

Before this week, Caterpillar stock had not closed below the 200-day moving average since May 2016. It also broke below its 50-day moving average last week.

When you zoom out to look at the weekly chart, Caterpillar's technical signals look better to Ross.

"This is where the pros are playing. Look at that 50-week moving average. We're still holding it to a 'T' here. I think we continue to hold that 50 week," said Ross. "Caterpillar finds support here and rallies. So I would be a buyer of Caterpillar on this weakness."

The options market is also indicating a degree of support for Caterpillar, according to Stacey Gilbert, market strategist at Susquehanna.

"One of the things that we were looking at is some put selling that we've seen in Caterpillar options," Gilbert said on Tuesday's "Trading Nation." "We are at a level where [investors are] at least at a minimum comfortable buying the stock or suggesting that they don't see it going much lower than where we currently are."

For those considering buying Caterpillar after some big swings in recent months, Gilbert lays out her strategy to make a play using options.

"The options have increased in terms of their pricing relative to what they've been historically because of this additional movement," said Gilbert. "If I were going to use the options in this case, I would want to trade it with a spread just because of the cost of the options relative to what they have been over the past couple of years."

Caterpillar is down nearly 1 percent on Wednesday, putting it on track for its sixth straight losing session. That would mark its longest losing streak since February 2017. The shares are down 18 percent from their 52-week high, placing them in correction territory and close to a bear market.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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