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Key Levels to Watch for China Proxy Caterpillar Ahead of Its Earnings Report

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Caterpillar's stock is at a crossroads ahead of earnings, one trader says.

The shares climbed by less than 1% on Thursday ahead of the industrial giant's Friday morning earnings report. A favorite China proxy for investors, Caterpillar's quarter and management commentary could shed light on how China's regulatory crackdowns could impact U.S. multinationals.

Right now, the stock is in "wait-and-see mode," JC O'Hara, chief market technician at MKM Partners, told CNBC's "Trading Nation" on Thursday.

"The recent price action suggests investors are sitting on the sidelines and are waiting for further news about the global environment," O'Hara said.

Friday's earnings report could be a defining moment for the stock, which has rallied from its March 2020 lows in a well-defined range, he said.

"We are at a crossroads right here. If we see any downside below 200, that would mean a break of a long-term uptrend and that's your downside risk," O'Hara said.

"Going into earnings, if investors like what they see and what they hear out of Caterpillar, we could make the case that Caterpillar can rally back up to the old highs at 245 if not higher."

Caterpillar shares were just below the $213 level late Thursday.

In short, "keep an eye on the risk at 200 with potential upside at 245," O'Hara said.

Though China risks could impact business, Caterpillar's U.S. ties may help mitigate those losses, Chantico Global founder and CEO Gina Sanchez said in the same "Trading Nation" interview.

"We are seeing a drop in fiscal spending and that will flow through to infrastructure demand, but on the other hand, … we have an infrastructure bill coming," said Sanchez, also chief market strategist at Lido Advisors.

"In the U.S., just the reopening is already presenting strong demand," she said. "I think that some of that is going to get offset and the outlook for Caterpillar is still quite good."


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