DE, John Deere update

de march 9 2013 b

How many lawnmowers do we really need? Well 25 or so years would suggest just as many as is required to keep the stock in this well articulated channel that has been in existence for all of this company’s lifetime. Things change courtesy Greenspan cheap money etc. and all of a sudden , starting in 2006, we all take up the weekend sport of mowing the lawn with a vengeance. Even the Chinese are attracted to this levelling approach to nature despite the lack of lawns on the x-floor of an apartment building. The stock shoots up, tumbles, and shoots up again, proving once again that central banker’s main purpose is to create waves. These ups and downs could be an A and a B and now C is developing, or,  a 4 and 5 and now a 1 of a correction. Either way the stock should work it’s way towards the $30 to $45 level in order to return to the channel, regression to the mean! In our previous blog (Oct.27, 2012) we suggested that in the bear case the stock could still rise to $95 to complete a wave 2 on the way down. Now 4 months later we have this;

de march 9 2013 s

Clearly the prediction was dead wrong. The stock went to $95.60!, leaving just 33 cents of leeway before invalidating this prediction entirely. As it stands things are still going to plan, in fact the little c of the a –b –c counter-trend wave 2 , is a classic example of a wedge (diagonal for EWers). Since the top at $95.60 the stock has, presumable, traced out another wave 1 and 2 (of different degree) and next we should have a 3 etc. and that is usually where the fun starts. This stock, by the way, speaks volumes on the efficacy of the many QE’s, Twists, arm twisting etc. etc. that the central bankers have engaged in. All that and still 30 cents short. A sell of course.

CAT and CMI are in slightly different positions, the 4-5 alternative being the most probable, but otherwise the counts are similar and the expected downward move of similar proportions. See CAT and CMI below, no lawnmowers buy a lot of mining/farming equipment etc.

CAT march 8 2013cmi marck 8 2013

CAT. Update.

CAT b oct 13 2011 Cat lb oct 13 2011

Just a little refresher on CAT, there are a few previous blogs as well.

We prefer the B-wave idea as it is more in accordance with the rest of the markets, but it really does not make a lot of difference for the next move as both lead to new lows ultimately. The B-wave has the advantage that it provides a very well defined first initial target, namely the level of the B-wave within the larger B-wave, about $53 or so. That also coincides with a 62% retracement of the rally from the lows of March 2009. Given the speed of the drop so far, we could be at those lows in about 4/5 months. Here is the detail;

cat s oct 13 2011

Given the proportions of the waves from $115 , I am pretty certain that we have done a wave 1,2 and 3 and are now in 4. (This could be wrong and the whole first wave is already complete, see blue alternative). Given that 3 in this count is about twice the size of 1 it is essentially a more elegant count. Assuming this is correct than we would expect alternation between 2 and 4, as 2 is a zig-zag 4 should be a sideways move, either a flat or a triangle. So you should get at least a,b and c and perhaps (if a triangle) d and e. Consequently it may be worth waiting a little to see that you do get a, b and c as the stock will not change much in value and you avoid the risk of it going higher. The 4th wave is at around $94, and this is also where overlap would occur, negating this count in favor of the alternative. Once the flat or triangle is complete wave 5 should take the stock close to the target of $53 to complete wave 1. That is where you could get the $30-$40 rebound before the bear market resumes.

If, and I do not think so, the alternate is correct, that is wave 1 is already complete than wave 2 would retrace about 1/2 to 2/3  so $95 to $105 is possible Waves 2 are usually zig-zags so this should happen fairly fast.


     CAT june 30 2011   

This was back in June.  We had called the peak a few months earlier and the stock had completed wave 1 down and wave 2 up. It was around $105 just shy of a 62% retracement and a 4th wave of previous degree. Here it is now;

cat sept 2011

As anticipated, it did go a little higher but then dutifully started wave 3 down. It has lost 27% in wave 3 alone. Longer term the target is much , much lower at $60 or so;

cat july 2011

CAT and HON, the importance of earnings, really?

cat july 2011 hon july 2011

Both charts superficially look alike. Both have very distinct B-waves , I think. Caterpillar, the one on the left, far exceeded its old highs primarily as a result of being the beneficiary of a lot of digging going on in mining and construction. Honeywell, on the right, did not do quite as well but did manage to, more or less, equal the old high (double-topping), and, hitting the underside of the previous channel.

Today both reported earnings, CAT was better by 44% and HON by 40%, and quite obviously both stocks traded down, CAT by as much as $7. It is not that CAT did not meet or exceed expectations, they almost all do. It is just that the CEO said a few things about China and the US administration that the market misunderstood or simple did not like. Earnings over the long haul are obviously important but in an environment where even large corporations go from shutting down to overtime in very short periods and where costs of capital are artificially reduced to zero and where productivity goes through the roof due to previous firings only to crash again due to exhaustion, it does not make a lot of sense to pay attention to. If these are B-waves, both stocks will go down regardless of earnings.