Deere Breaks Out From Channel Amid Farming Turnaround

Deere & Company (OF) shares rose 7% during Friday’s session after the company reported better-than-expected first quarter financial results and maintaining its fiscal year 2020 outlook. Revenue fell 5.9% to $6.53 billion, beating consensus estimates by $360 million, and GAAP earnings per share came in at $1.63, beating consensus estimates by 37 cents.

While the farming business has shown signs of stability following developments in the U.S.-China trade war, the slowdown in construction and forestry depressed revenue for the quarter. Farmers are hoping that the trade war will resolve in the near term.

Looking ahead, the company maintained its fiscal year 2020 outlook for net income of between $2.7 billion and $3.1 billion. Management expects a slowdown in heavy equipment orders from Canada and a drop in worldwide construction and forestry equipment sales. The company also allocated $40 million in costs for expedited freight to mitigate the potential supply chain impact from the spread of the coronavirus around the world.

From a technical standpoint, the stock broke out from its price channel to a fresh 52-week high before closing slightly below reaction highs. The relative strength index (RSI) moved toward overbought territory with a reading of 63.05, but the moving average convergence divergence (MACD) continued its move toward the zero line. These indicators suggest a bullish outlook with the potential for some near-term consolidation.

Traders should watch for consolidation above trendline support at $172.40 over the coming sessions. If the stock rebounds higher, traders could see another move to breakout from 52-week highs of $181.99 to fresh highs. If the stock breaks down, traders could see a move lower to retest support levels at around $157.00, although the bull scenario seems more likely to occur given the better-than-expected fundamental results.

The author holds no position in the stock(s) mentioned except through passively managed index funds.