The market rarely moves in a straight line. So when you see a counter-trend rally like we saw Monday, that's your chance to pounce, Jim Cramer said in his Real Money column "What Defines the Exaggerated Reality?".
We all know that when inflation rears its ugly head, that's the time to sell growth stocks like technology and snap up cyclical names like the industrials and financials.
Cramer said this strategy is especially important in this market, because there's a real shortage of quality industrial stocks to buy. Investors only have Deere (DE) and AGCO Corp. (AGCO) to choose from when it comes to farm equipment.
We reviewed the charts of AGCO on Dec. 22 and wrote that "AGCO longs could raise stop protection to $95. Use a shallow dip to add to longs or start a new position. The $137 area is our price objective for now."
Now that prices have passed our $137 price target a fresh look is needed.
In the updated daily bar chart of AGCO, below, we can see that the shares are up nearly four-fold in the past 12 months. Notice how AGCO has bounced off the rising 50-day moving average line several times since September. Charts work! AGCO is trading above the 50-day average and the rising 200-day line. Prices are not extended relative to the 200-day average.
The On-Balance-Volume (OBV) line has been level the past three months and that is a bearish divergence when compared to the bullish price action. The Moving Average Convergence Divergence (MACD) oscillator has been above the zero line since June and has recently narrowed toward a possible downside crossover.
In the weekly Japanese candlestick chart of AGCO, below, we can see a positive picture. Prices are in a steady uptrend above the rising 40-week moving average line.
The weekly OBV line is at a new high from its rise from last March. The MACD oscillator is bullish.
In this daily Point and Figure chart of AGCO, below, we can see a $152 price target.
In this weekly Point and Figure chart of AGCO, below, we see a possible $172 price objective.
Bottom-line strategy: The charts and indicators of AGCO are pointed up with $152 and then $172 as new price targets. AGCO could show independent price strength over the next few weeks but I would not rule out a sideways consolidation before renewed gains as weakness in the broader market could turn buyers less aggressive.