Trade of the Day: Deere’s Run is Over — Sell Now

Deere & Company (DE) — This is the world’s largest producer of farm equipment, and also one of the most well-known makers of construction machinery and lawn and garden equipment.

DE stock fell 0.9% on Wednesday after reporting fiscal fourth-quarter results. Revenue declined 6.7% year over year to $804 billion, and earnings were down 13% to $1.83 per share. While this beat Wall Street’s expectations, the company’s guidance came in well below estimates with management citing a slowdown in the U.S. farm economy.

S&P Capital IQ rates DE stock a “sell,” with its analysts saying the company’s business cycle has peaked. They predict challenging global economic conditions and less favorable crop pricing will result in lower demand for farm equipment. Deere said it expects sales of farm machinery to decrease 20% in 2015.

DE stock has been in a bear market since May, when it topped just under $95. Since then, there have been just three attempts to break through the bearish resistance line, now at about $88. The first one occurred in June, the second in early November, and the latest in late November — and all three failed.

Immediate support for DE stock is at the 50-day moving average at $84.67. Resistance is at the 200-day moving average at $87.67, and just above that at its bearish resistance line. MACD is negative and failing deeper into the bear zone. And there was a pickup in selling on Wednesday following the earnings announcement.

Sell DE stock if you own it. Deere is also a short-sale candidate for speculators who understand and accept the risks of short selling. The downside target is $79, and a stop-loss order should be placed at $89. If you plan to short DE stock, or any stock, check with your broker for their ability to borrow shares and any special requirements associated with it.

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