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Caterpillar Bulldozes Through Resistance to Take Dow Lead

Shares of Caterpillar, maker of backhoe loaders, off-highway trucks and underground excavators, are up more than 40 percent this year after a breakout this month that technical analysts are calling a thing of beauty.

Caterpillar has bulldozed the worries about a double-dip in the global economy from a European credit crisis or tightening measures in China. The recent decline in the dollar , which makes the company’s pipelayers and paving equipment, even cheaper overseas put the company over the top this month, allowing it to overtake another global economy play, DuPont , which is up about 40 percent on the year.

“The breakout clears the chart of resistance until the 2007 high of $87,” said Katie Stockton, Chief Market Technician at MKM Partners, in a note last week right as the climb in Caterpillar above the resistance at $72 was occurring.

A break above those 2007 highs would put Caterpillar at an all-time high, above the height of China growth hype fueled by the Summer Olympics breakout. If investors were so worried about the slowing globe, then why are they close to sending a Peoria, Illinois-maker of diesel engines and hydraulics to its highest level ever?

The fundamental case got a boost on Friday, when Credit Suisse raised its target price on the stock to $95, citing a dealer survey showing healthy demand and lean inventories.

Caterpillar “continues to be our top pick and best positioned (in our opinion) to benefit from a strong commodities cycle coupled with the long awaited recovery in the US construction equipment,” said analyst Jamie Cook. “Backlog for large equipment is building for CAT with healthy visibility into 2011.”

The chart seems to be telegraphing this fundamental upturn.

Carter Worth, Chief Market Technician for Oppenheimer Asset Management, citing Caterpillar as Exhibit A in a list of classic September breakouts from a long period of frustrating consolidation.

“It takes a lot of buying pressure and bullish momentum to compel a stock up and out from a range that’s persisted for some time,” wrote Worth.

So after this September breakout is the bullish case for Caterpillar finally priced in? One can hardly say that after looking at the analyst coverage. The stock is still the least-liked equity in the Dow Jones Industrial Average, according to a screen on FINVIZ.com.

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Trader disclosure: On Sept. 27th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Terranova Owns (APA), (AAPL), (ARUN), (BMO), (C), (IBM), (HES), (JOYG), (XBI), (FTO), (OXY), (ORCL), (PEP), (POT), (RSH), (SU), (RIG), (UPL), (VRTS); Weiss owns (BAC), (MOS), (CSX), (HK), (TXN), (WFR), (QCOM); Weiss is short (SF); Pete Najarian owns (NETL) call spreads; Pete Najarian owns (POT) call spreads; Pete Najarian owns (CNI); Pete Najarian owns (AMZN) call spreads; Pete Najarian owns (AKAM) call spreads; Pete Najarian owns (RAX) call spreads; Pete Najarian owns (LLNW) call spreads; Pete Najarian owns (DD); Pete Najarian owns (NOV); Pete Najarian owns (YHOO); Karabell owns (POT), (RIMM), (AAPL); Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)

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