Deere gained ground again on Friday but it was becoming clear the rally off the September lows, which had now stretched to nearly 30%, was becoming exhausted. On Monday the stock was weak from the bell and may fade further as a healthy pullback develops.
The agricultural and mowing company's current bull leg began back on Sept. 15 shortly after the stock successfully retested its 200-day moving average. Six weeks later DE was trading at new 2016 highs and had taken out multiple layers of supply in the process. Those patient investors who waited out the late August/early September pullback where well rewarded.
As earnings neared the stock was working on a two-and-a-half-week narrow consolidation as the upward momentum remained intact. DE had gained over 15% off the September low and was still set up well for more upside.
Since the Nov. 23 breakout DE has entered extremely overbought territory. This will likely make further upside quite difficult without a healthy pullback and consolidation. For patient investors this will create an attractive entry opportunity.
In the near term the area of the 2015 high is an initial support level but considering the extent of the September rally a deeper pullback may be needed. DE has a very solid support zone in place between $95.00 and $93.00. This key area includes the 2014 high at the upper band and last week's breakout gap at the lower band. A new base here would offer a very low-risk buying opportunity.Click here to see the below chart in a new window.