Deere (DE - Get Report) opened Friday with a price gap lower to as low as $138 after missing earnings-per-share estimates for the fifth consecutive quarter. Investors should buy this stock down to its annual value level at $134.22.
The charts provided warnings that the earnings reaction would be negative. Shares of Deere fell below their 200-day simple moving average at $152.65 and its semiannual pivot at $150.56 on Monday, May 13. Buying Deere on weakness is supported by the fundamentals as its P/E ratio is 15.14 with a dividend yield of 2.1%, according to Macrotrend.
TheStreet reported that Deere cut its 2019 forecast and showed concern about the trade war with China. The company reported that the U.S. agriculture market was softening, leading to disappointing guidance. Estimates for Friday's earnings report were between $3.57 and $3.63 per share and the company reported $3.52.
At Friday's opening low of $138, Deere is down 7.5% year to date and up just 7.5% from its 52-week intraday low of $128.32 set on Oct. 29. The stock set its 2019 high of $169.99 on April 18 and is in correction territory down 18.8% since then.
The stock closed the day down nearly 7.7% to $134.82.
Two Wall Street firms downgraded Deere before its earnings report. On Thursday, Citigroup lowered its price target to $170 from $180 but kept its buy rating. Citigroup's concern was that farmer spending is softening, and some crop prices have been declining. On Tuesday, JPMorgan downgraded the stock to underweight from neutral lowering the price target to $132 from $154.
The Daily Chart for Deere
Courtesy of Refinitiv XENITH
The daily chart for Deere shows that the stock has been extremely volatile over the last 52 weeks. The decline from its 2019 intraday high of $169.99 on April 18 is approaching bear market territory. The stock closed Dec. 31 at $149.17 which provided input to my proprietary analytics. The chart shows that its annual value level at $134.22 which remains the downside risk. The semiannual pivot at $150.56 was the key level that failed to hold this week. The second quarter risky level is above the chart at $184.47. The risky level for May is a $169.30.
The Weekly Chart for Deere
Courtesy of Refinitiv XENITH
The weekly chart for Deere is negative with the stock below its five-week modified moving average at $157.48. The stock is well above its 200-week simple moving average or "reversion to the mean" at $118.53. The 12x3x3 weekly slow stochastic reading is projected to decline to 56.31 this week down from 66.89 on May 10.
Look back to February 2018 when the stock set its all-time intraday high of $175.26. Back then, the stochastic reading was 95.80 well above 90.00 as the stock was in an "inflating parabolic bubble" and today we see that bubble popping.
Trading Strategy: Buy weakness to the annual value level at $134.22 and reduce holdings on strength to the semiannual pivot at $150.56 and to the 200-day simple moving average at $152.63.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."