Here's How You Trade Deere on its Strong, Upward Momentum

Deere (DE) is in bull market territory since setting its 52-week low in January. The farm equipment and mower manufacturer's stock began to bottom as weakness held key technical levels following earnings results in February and May.

Then, on Aug. 18 the company had a strong positive reaction to earnings, setting the pattern suggesting the stock should be bought on weakness. Deere reports its newest quarter of earnings early Wednesday. Analysts expect Deere to earn 36 cents a share. 

As a bonus, Deere shares reacted positively to the election of Donald Trump because some investors believe Deere equipment will be used for infrastructure projects to build or repair U.S. roads. The stock set its 2016 high of $92.99 on Nov. 9.

Others are less optimistic. Deutsche Bank, in a recent research note, questioned the availability of shovel-ready projects. Some investors also believe the stock is a short-sale candidate .

Here are the daily and weekly charts to help you make your own investment decision.

The daily chart features the Fibonacci retracement levels of the stock's decline from its June 30, 2015, high to its Jan. 21 low. Retracements are 23.6%, 38.2%, 50% and 61.8% of this bear market decline.

The weekly chart shows a red line through the price bars, which is the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average considered the "reversion to the mean."

The study in red along the bottom of the charts is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold.

A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00. A positive weekly chart shows the stock above its key weekly moving average with weekly momentum rising above 20.00 in a trend towards 80.00.

Here's the daily chart.

Courtesy of MetaStock Xenith

Deere closed Monday at $92.30, up 21% year to date and in bull market territory 31.6% above its Jan. 20 low of $70.16. The stock is also 6% below its June 30, 2015 high of $98.23.

The daily chart shows the Fibonacci retracement levels of the decline from its June 2015 high to the January 2016 low.

The stock has had a volatile rebound from its Jan. 20 low of $70.16. The 23.6% retracement of $76.81 was a magnet and provided entry levels several times between Jan. 29 and Aug. 18. The 38.2% retracement of $80.90 was crossed at least ten times and held as support on Sept. 14, which was also a buying opportunity from the 200-day simple moving average of $80.28. Before this dynamic, the 61.8% retracement of $87,52 was a level at which to book profits on June 6 and Sept. 19.

As the Fibonacci retracements provided several range-trading opportunities the stock formed a "golden cross" on April 29 when the 50-day simple moving average rose above the 200-day simple moving average indicating that higher prices were likely in the days ahead. The stock closed at $84.11 on April 29, which solidified the strategy to buy weakness to the 200-day simple moving average and the 23.6% retracement. 61.8%.

The stock penetrated and held its 61.8% retracement of 61.8% on Nov. 1, beginning the momentum run-up.

Here's the weekly chart.

Courtesy of MetaStock Xenith

The weekly chart of Deere is positive but overbought with the stock above its key weekly moving average of $88.77 and above its 200-week simple moving average of $85.51. This "reversion to the mean" was a magnet between the week of March 4 and the week of Oct. 21. The weekly momentum reading is projected to rise to 85.18 this week up from 82.52 on Nov. 18, moving further above the overbought threshold of 80.00.

Investors looking to buy Deere should consider doing so on weakness to $85.17 and $84.09, which are key levels on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $105.45, which is a key level on technical chart until the end of 2016.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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