A Dark Cloud Over Deere?

Mar.18.11 | About: Deere & (DE)

by Bryan McCormick

The farm equipment maker is up more than 300 percent since the lows of 2009, but there is one sign on the horizon that isn't entirely bullish.

Deere & Co.'s (NYSE:DE) stock has been one of the success stories of the rally off the lows of 2009. Since DE hit that low at $24.51, the stock at its recent peak was up more than 300%.

While that is an amazing recovery, there is one sign on the horizon that isn't entirely bullish for the farm equipment maker. And it is a sign we should all be familiar with after the broader indexes, notably the S&P 500, hit what were thought to be unbounded highs in 2007.

The red horizontal line that I have drawn on the chart below is the previous price peak from 2008 at the $95 area. Recently the stock broke above that level but fell back rather quickly.

DEClick to enlarge

(Click chart to expand)

In many respects this is not unlike the behavior we saw with the S&P 500 (NYSEARCA:SPY), which took many years to reach and then slightly exceed its previous highs. It too then faltered and a major correction ensued.

Although the stock certainly does not have to follow this path, it does set a new obstacle for DE to overcome. Asset prices that meet old highs and then fail to continue powering through at a minimum can enter substantial corrective phases. That already appears to be happening when we look at the weekly chart above, where the 10-week moving average, in orange, has been tested.

In a bull phase that test would be a potential buying opportunity and likely would be if the stock were not poised so close to resistance. That $95 area and the behavior of the stock around the 10-week moving average will need to be followed closely.

(Chart courtesy of tradeMONSTER)