Industrial stocks as a sector of the S&P 500 have had a tough going year-to-date, yet the price action over the past month or is beginning to show more constructive signs. Many of the large names in the sector such as Deere (NYSE:DE) look similar on the charts as one would expect. DE stock has given the bulls four bullish reversals since late April, and it increasingly looks likely a push higher is in the cards for this name.
This is a good a spot as any for me to again reiterate the importance of recognizing that stocks as an asset class are highly correlated. This holds particularly true in sectors and industry groups of stocks, where a bullish or bearish trend in the sector at any given point likely affects a good majority of the stocks in the group.
DE Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Case in point with industrial stocks, which as a sector are up by around 2.5% for 2018 so far and thus notably lagging the S&p 500. After a clear and important breakout in late 2016, industrials were in favor throughout 2017 and rallied strongly into January 2018. Since then, however, it has largely been a story of consolidation. This consolidation phase at the thus-far lows in early May was about 13% deep. As a result of the sideways march the weekly MACD momentum oscillator at the bottom of the chart is now in oversold territory for the fist time since the fall of 2015.
While this alone does not make industrial stocks a buy here, all else being equal, this is constructive signal to watch for buy signals.
Note that my above discussion was on industrial stocks as a group but it can also be applied to shares of Deere. The only major difference is that DE stock for the year is lower by about 7% versus the industrial sector being higher by 2.5%.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, I marked three bullish reversals that DE stock has had since May. Each of them occurred around the $132-$133 area. The bullish reversal from Aug. 17 was followed yesterday by another bullish outside day.
While this one still needs follow-through buying for another day to confirm the strength, active investors and traders with less risk aversion could consider buying the stock here around the $145 area with next upside targets around $150 and $155. Any strong one day bearish reversal is a stop loss signal.
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