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Deere Plows Higher on Strong Farming Demand - Here’s the Trade

My price target for Deere is its monthly and semiannual risky levels at $190.40 and $204.93, respectively.

Deere's  (DE) - Get Free Report fiscal first-quarter earnings beat on Friday was the second consecutive quarter the company topped analysts' forecasts.

The stock was poised for a positive report as shares closed Thursday just below their annual pivot at $166.59. 

The stock is setting a new all-time intraday high Friday, moving above its prior high of $180.48 set on Nov. 11. 

My price target is its monthly and semiannual risky levels at $190.40 and $204.93, respectively.

Fundamentally, this is a total turnaround story thanks to the trade accord with China. Farmers are buying agriculture and turf equipment as the farming sector stabilizes. 

At $180.48, the stock is up 4.2% year to date and in bull market territory 36% above its 52-week low of $132.68 set on May 20, 2019.

The stock is reasonably priced fundamentally with a price-to-earnings multiple of 16.64 and a dividend yield of 1.84%, according to Macrotrends.

Over the past 52 weeks the stock had three corrections. Between April 22 and May 20 there was a decline of 22%; between July 29 and Aug. 15, the decline was 17.5%. Then, between Nov. 11 and Feb. 3, 2020 the decline was 12.8%.

The Daily Chart for Deere

The Daily Chart For Deere

The Daily Chart For Deere

Courtesy of Refinitiv XENITH

The daily chart for Deere clearly shows that the stock has been extremely volatile over the last 52 weeks.

The stock closed Dec. 31 at $173.28 which provided and important input to my proprietary analytics. The stock was just below the annual pivot for 2020 at $166.59 pre-earnings. 

Its quarterly value level at $162.46 was crossed to the upside on Feb. 4. The semiannual risky level is above the chart at $204.93.

The close on Jan. 31 at $158.58 was an input to my analytics and its risky level for February is $190.40.

The Weekly Chart for Deere

The Weekly Chart For Deere

The Weekly Chart For Deere

Courtesy of Refinitiv XENITH

The weekly chart for Deere is positive with the stock above its five-week modified moving average at $171.14. 

The stock is well above its 200-week simple moving average or “reversion to the mean” at $135.57. This was last tested during the week of Oct. 7, 2016 when the average was 85.49.

The 12x3x3 weekly slow stochastic reading is projected to rise to 50.42 this week up from 44.56 on Feb. 14. 

Back during the week of Nov. 15 this reading was 91.71 putting the stock in an “inflating parabolic bubble” formation. The decline from $180.48 to $157.28 on Feb. 3 was 12.8%.

Trading Strategy: Buy weakness to the annual value level at $166.59 and reduce holdings on strength to its monthly and semiannual risky levels at $190.40 and $204.83, respectively. 

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Monthly levels for February were established based upon the January 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.