Deere's (DE - Get Report) three-month consolidation is ending with a decisive breakout. The stock opened today with a powerful upside gap that lifted shares to new April highs. Minutes into the session DE was moving past major resistance near $112.00 as it extended its rally off last week's low to 6.25%. This impressive move may be just the beginning of a new rally phase that could carry the stock sharply higher and comes on the heels of Caterpillar's powerful earnings-inspired breakout.
Three months after DE exploded to the upside immediately following its Nov. 23 earnings release, the stock ran out of steam. Despite a big post-earnings upside gap in mid-February the stock remained stalled below the $112.00 area. DE has been tracing out a narrow consolidation pattern since then while continuing to put in higher monthly lows. This bullish pattern is now providing the footing needed for further gains.
In the near term DE investors should consider the stock a very low risk buy on weakness. There is now a very solid support zone in place between $113.00 and $111.00. This key area includes the February, March and early April highs. On the downside a close back below $109.00 would signal more consolidation ahead.
Also of note, DE sports a high short interest ratio (7.75). This high rate of bearishness will provide added upside fuel. DE is scheduled to report Q2 earnings on May 19.
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