The stock has been trading in what market technicians call a "pennant" pattern since April 2011.
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The upper end of the pennant is a series of lower highs after the stock set an all-time high at $99.80 during the week of April 1, 2011. The low end of the pennant was set six months later after a decline of 40% to a multiyear low at $59.92 in October 2011.
The important message this week is that Deere is challenging the upper end of the trend line connecting the highs going back to April 2011. A positive reaction to earnings reported before the opening bell on Wednesday could result in what technicians call a technical breakout.
Analysts expect Deere to report earnings of $1.59 a share. The company has beat estimates seven quarters in a row without a breakout to the upside, as its forward guidance has consistently been conservative.
For example, Deere beat analysts estimates a year ago by 22 cents a share reported on Nov. 26, 2013, but the stock dipped from $84.52 to $82.20 into Dec. 3 before rebounding to as high as $91.58 going into Dec. 26.
A year ago, the company reported that net sales of agricultural, construction and forestry equipment were weaker than expected. This guidance is important again this year, but given the recent extreme cold snap and heavy snows, investors should look at sales of Deere's commercial snow removal equipment.
Over the past two years, Deere traded in an extremely choppy trading pattern between $94 and $95 a share at the high end in January 2013 and May 2014 to the low end below $80 a share in June 2013 and last month where the low was $78.88 on Oct. 8.
Investors should trade the range, but be prepared for a technical break-out above $94.05 on Wednesday or for a trend below the stock's 200-week simple moving average now at $84.23.
On a positive reaction to earnings that are shy of a technical breakout, investors in Deere shares should enter a "good 'til canceled" limit order to sell strength to key technical levels at $90.65 and $93.63. If there is a breakout above $95.05, this GTC limit order should be raised to a higher range of key technical levels at $107.05 and $109.45.
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Investors should employ a sell-stop below the 200-week SMA at $84.23.
Here is the daily chart for Deere:
Courtesy of MetaStock Xenith
The daily chart for Deere ($87.07) shows the extreme up and down volatility between $80 and $79 on the downside to $94 and $95 on the upside, a range of 20% from low to high. The 200-day simple moving average (green line) has been crossed several times and is at $87.67.
Here is the weekly chart for Deere:
Courtesy of MetaStock Xenith
The weekly chart for Deere shows the down trend that goes back beyond the left side of the graph to the all-time intraday high at $99.80 set in April 2011.
The chart shows that the 200-week SMA (green line) is the important level to hold at $84.23. The down trend line is at $94.05 this week.
The weekly chart is positive with its key weekly moving average at $85.82. The momentum reading shown in red at the bottom of the graph is rising at 73.15, up from 66.41 a week ago below the overbought threshold of 80.
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At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates DEERE & CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate DEERE & CO (DE) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
You can view the full analysis from the report here: DE Ratings Report