It is not at all clear what this stock was doing for nine years from 2008 to the beginning of this year. It could have been a very ugly triangle or a very elongated wave b in an a-b-c 5th wave in a diagonal. We simple do not know!

But, the last wave up from about $67 or so is a clear 5-wave sequence that is peaking. Both RSI and MACD favour this interpretation. So do, I think, fundamentals. If you live in farm country you will know that a tractor, properly taken care of, can last for half a century. Farmers buy these “toys” – they come with every imaginable gadget – when they have the money, not when they need them. This makes these machines truly discretionary and as a result demand can fall off like a rock. This stock should be an excellent short.

See our previous blogs on DE. You are now down about 25% since we recommended selling this stock (and similar ones like CAT). At first we expected a 4th wave around this level and that  appears to be what we got, at least it is a triangle. However triangles can be either a 4th wave or a B wave.  Given the size relative to wave 2 it has occurred to us that this may in fact be a B-wave (in pink). The consequence of such a change is that we are already in a wave C and could continue the drop much faster than in the other interpretation.

Time will tell.

So we got our 4 and 5 waves and the stock is now down about $25. For the moment that may be enough even though forward looking statements by CAT are hardly inspiring. After a bounce this one will probable proceed to about $55 for starters. Komatsu, the Japanese heavy equipment builder looks even sicker.

So we were lucky, was it EW or the sweet smell of manure? Less than a week ago we suggested this was a sell despite the many shorts already on this stock. The company cut some expectations by about 25%, inventories are good for 7 months , for second hand equipment – this stuff lives forever! – it is twice as much. Prices for farmland are now dropping in the US. People are no doubt already wondering if this is not a good dip to buy. In our opinion it is not, not even close as we are looking ultimately for the stock to drop below $30.  Al we did today is complete wave 3 of wave 1 of C. Do not forget “Nothing runs like a Deere”