DE, John Deere

de aug 2012

Our overall expectation was and is that this stock will , once again, trade below the $30 lows of the great recession. They reported today and growth at about 15% y.o.y was pretty impressive if you ask me , but the market did not like the top line etc. etc. Also these guys are in crop insurance, not in a big way but certainly not at a great time. Memories of GE trying their hand at banking are still fresh. In any case they took the stock down 6+% so if you just bought it you are not happy. I suspect you will soon be even less happy

The first leg down, after the B-wave, took the stock down about $40 in a fairly clear 5-wave sequence, or is it 3 waves? Whatever. All action thereafter has been sideways, pretty well for a whole year now. All legs during this time are without a doubt 3-wave affaires. If this continues it will start looking suspiciously much like a triangle, meaning that it must be either a B-wave or a 4th. As this entire leg down from $97.5 is supposed to be a large C wave, the only option is to classify this as a 4th wave. A sharp thrust down could start now, that is it might already have started, or this triangle still needs to finish d and then e before we get the “thrust”.  We would definitely get out and stand aside. The chart below may be more convincing:

DE aug 2012 b

Buy low , sell high is the advice that should never be ignored. There are obviously times when buying high and selling higher works just as well but why handicap yourself. Clearly there cannot be any doubt that this stock is closer to a high than a low, in fact a move down to $30 would be a normal regression to the mean.