Deere & Co. (NYSE: DE) has been on a massive 40%, 12-month run, right alongside a strengthening overall global economy.
It's not a bad time to produce the equipment used to "Rebuild America." The momentum is very strong here.
Still, not everyone on Wall Street is a fan. You see, the shares have been just a bit more volatile than the market, so they see it as a risk.
I'm going to show you why they're dead wrong, and why today, right before this American classic reports earnings, is the perfect day to buy.
You see, it's all about the kind of volatility in play with this stock. I call it "upside volatility," and it's an extremely powerful profit-maker...
Strong "Upside Volatility" Is Working Here
Over the last year, Deere & Co. has seen 126 days where the stock traded higher. Over the same
period, the S&P 500 has been higher 131 days. Let's call that a draw.
The real difference in volatility is here...
The average one-day move for Deere & Co. on those days was 1.2%. The average move for the S&P 500: 0.6%.
Now, that's the right kind of volatility - "upside volatility," the kinds of moves that spur really big gains - something traders like us absolutely love to see.
Not everyone else agrees.
Those Wall Street types I mentioned earlier, the analysts who are actually down on this company? Well, it turns out only 33% of them have rated John Deere a "Buy."
Right now, they're happy to just sit back and watch DE double the S&P 500. But soon enough, they'll realize what I'm about to show you and upgrade their outlooks. That's only going to help boost our profits.
Short sellers are also in this company up to their necks.
Currently, there are nine times the average daily volume of Deere & Co. shares tied up in short sales.
This means that short sellers are on the hook to cover lots of positions that will be losing money when the stock moves higher.
Here's why I think we'll win big... and leave the skittish analysts and short sellers in the dust.
Because, looking at the charts, it's hard to figure out why the market hasn't jumped on the Deere & Co. bandwagon yet.
The Technical Picture Looks Good... Really Good
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The stock is trading with support from the short-term 20-day moving average like a bullet train on a rail. In addition to this short-term support, the stock has intermediate-term support potential from the critical 50-day moving average, which sits at $105.
Since April 2016, the 50-day moving average has been trading above the 200-day moving average. As time passed, the strength in Deere's trend has widened the gap between these telltale trend indicators.
Deere & Co. stock started the week in slightly overbought territory, something that is in the process of changing just ahead of earnings.
The last two days of trading have seen the shares drop 3%, suggesting that the "crowd" is "selling the rumor" ahead of the earnings report on Friday morning before the open.
Ironically, a dip in a stock price ahead of earnings improves the historical results for post-earnings performance in many stocks' cases, especially when it takes the stock out of technically overbought territory, which is where Deere & Co. finds itself now.
Finally, a look at the earnings trends and results shows that Deere & Co. has seen an improvement in the trend of earnings reactions.
The last two quarters' results have seen the stock soar by an average of more than 11% over the five days following the announcement.
Even better, the data shows analysts' expectations for earnings per share have remained muted at $0.51 per share this quarter.
Everything is coming up "green" for buyers here.
This stock is technically strong, analysts and short sellers are all over it, and there is an iron-strong fundamental backdrop for Deere and other industrials right now.
Folks who buy into this heavy machinery giant today, ahead of earnings, should clean up by the weekend.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.