Hang on to Your Cap as Deere Corrects to the Downside

 | Aug 18, 2017 | 10:00 AM EDT
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Deere & Co (DE) made a great upside run over the past two years, but right now a pullback looks like the most likely course for this iconic farm and construction equipment manufacturer. Prices made a minor peak earlier this month, but the decline has picked up some speed.

We have been bullish on DE, and covered the stock in May -- providing an upside target and risk parameter: "Continue to trade DE from the long side, risking a close below $110. The $125 area is our initial upside price target." Prices did reach our $125 target. Maybe you booked some profits.

Let's check the charts and indicators this morning to see if prices can stabilize around the 200-day moving average line.

In this daily bar chart of DE, above, we can see that prices have closed below the now-declining 50-day moving average line. Prices (not shown) were trading around $116 ahead of the opening bell, but began declining to around $113 in early morning trading. There is some chart support around $115 and more around $110. The rising 200-day moving average line intersects around $112 now -- and it may provide some support as it did back in September.

The 12-day momentum indicator did its job in showing a bearish divergence earlier this month. Momentum made lower highs from June to August, as prices made higher highs. Momentum is a leading indicator and the pace of the rise in DE shares slowed into the August peak.

In this weekly bar chart of DE, above, we can see that prices are above the rising 40-week moving average line. Prices stalled around $110 before reaching the low $130s, and that area may act as support on this decline. The weekly OBV line turned flat in the past two months -- and it did not match or confirm the new price highs. In the lower panel, the 12-week momentum study shows a bearish divergence.

In this Point and Figure chart of DE, above, we can see that prices met an upside price target and that support on this chart is in the $110-$106 area.

Bottom line: Hang on to your green cap as DE corrects to the downside. The sooner price finds some support, the faster everyone can take a deep breath. Two closes below the 200-day moving average line will prompt a more-bearish appraisal.

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