DE, Deere & Co. and Kubota

August 16, 2015August 16, 2015 Hamilton

The usual then, Oct. 27, 2012, and now charts.

From the, almost 3 year old, blog you can see that we try to keep an open mind. EW is always about alternatives and the waves must show the way. If they do not, it is imperative that you do not draw unwarranted conclusions. Having said that we do think DE is a sell despite the fact that we are not sure what to make of the chart.

It took two years to regain all the losses during the great recession as the stock climbed to an all time high of $98.23. Another four years and the stock still has not been able to do better. Just for the historians among you, I have found some interesting bits of info that show how ridiculous the comparison with the Great Depression really is. From 1930 to 1932 sales dropped from $63 million to $8.7 million. Employment went down by 75% from 4,800 to 1,270 and salaried employees saw their pay cut by about 31%. The local bank was saved after two employees embezzled about $1.2 million and DE generously injected a similar amount and effectively took over control. (see Sam Moore in Farm and Dairy).

We have referred to the tendency of stocks wanting to get to an even number, particularly $100 , as the Mount Everest phenomenon. If you ever tried that, I have not, you will know that if you do not succeed immediately you have to go back to base camp to recharge. Lately the stock got slightly above $97 so it succeeded at neither. It may still get to, say $105 but we would not hold our breath. About 10+% of the float is now held by shorts which may, for a change, be the right position to take.

If you live in the country enjoying the fresh smell of manure you are always amazed at how little tractors and other machinery is actually used. Most of the big stuff sits idle for most of the year and they do not wear out very fast. The purchase of these $150,000+ machines is consequently entirely discretionary and induced by income/wealth and tax considerations rather than “need”. Prolonged periods of buyer droughts are entirely possible and this would impact the stock. Between here and $105 we would be short this stock.

Kubota supports this view. It has a clear 5th? wave up from the lows measured in Yen terms. It is a formidable competitor with, in my view, a better product.

DE, John Deere update

March 10, 2013March 10, 2013 Hamilton

How many lawnmowers do we really need? Well 25 or so years would suggest just as many as is required to keep the stock in this well articulated channel that has been in existence for all of this company’s lifetime. Things change courtesy Greenspan cheap money etc. and all of a sudden , starting in 2006, we all take up the weekend sport of mowing the lawn with a vengeance. Even the Chinese are attracted to this levelling approach to nature despite the lack of lawns on the x-floor of an apartment building. The stock shoots up, tumbles, and shoots up again, proving once again that central banker’s main purpose is to create waves. These ups and downs could be an A and a B and now C is developing, or, a 4 and 5 and now a 1 of a correction. Either way the stock should work it’s way towards the $30 to $45 level in order to return to the channel, regression to the mean! In our previous blog (Oct.27, 2012) we suggested that in the bear case the stock could still rise to $95 to complete a wave 2 on the way down. Now 4 months later we have this;

Clearly the prediction was dead wrong. The stock went to $95.60!, leaving just 33 cents of leeway before invalidating this prediction entirely. As it stands things are still going to plan, in fact the little c of the a –b –c counter-trend wave 2 , is a classic example of a wedge (diagonal for EWers). Since the top at $95.60 the stock has, presumable, traced out another wave 1 and 2 (of different degree) and next we should have a 3 etc. and that is usually where the fun starts. This stock, by the way, speaks volumes on the efficacy of the many QE’s, Twists, arm twisting etc. etc. that the central bankers have engaged in. All that and still 30 cents short. A sell of course.

CAT and CMI are in slightly different positions, the 4-5 alternative being the most probable, but otherwise the counts are similar and the expected downward move of similar proportions. See CAT and CMI below, no lawnmowers buy a lot of mining/farming equipment etc.

DE, John Deere & Co, update

October 27, 2012October 27, 2012 Hamilton

The dumber you are, the better EW works, so I am at a disadvantage. But then I do like to keep an open mind. A few years ago the best performing stock market in the world was that of Zimbabwe, better known to many as Rhodesia. That was, of course, measured in local currency and in nominal terms. I expect deflation first and then inflation so I am not looking for the same thing to happen in the USA right away, but who knows.

Deere has traced a nice triangle, the b, c, d and e are clearly 3 wave structures, but the a could be either a 3 wave or a 5 wave structure. The latter would disqualify the pattern as a triangle, but in the former case (shown in black) the triangle would be valid and would, as always, have to be either a B-wave in an A-B-C, or a 4th wave in a 5 wave sequence. Here, only that would make any sense at all. The stock would then thrust up to about $130. In the bear case (in purple) we are working on completing a wave 2, a-b-c counter-trend bounce that might go as high as, say $95 before peaking. It is downhill from there.

EW aside, the bear case makes a lot more sense at this time. See also previous comments. The RSI is peaking and the MACD is clearly not confirming. CAT is in the doghouse and expecting lower growth, only CMI, Cummings remains at similar lofty levels.. Overlap between waves 4 and 2 in the big picture make the bull case near impossible!

DE, John Deere

August 15, 2012August 15, 2012 Hamilton

Our overall expectation was and is that this stock will , once again, trade below the $30 lows of the great recession. They reported today and growth at about 15% y.o.y was pretty impressive if you ask me , but the market did not like the top line etc. etc. Also these guys are in crop insurance, not in a big way but certainly not at a great time. Memories of GE trying their hand at banking are still fresh. In any case they took the stock down 6+% so if you just bought it you are not happy. I suspect you will soon be even less happy

The first leg down, after the B-wave, took the stock down about $40 in a fairly clear 5-wave sequence, or is it 3 waves? Whatever. All action thereafter has been sideways, pretty well for a whole year now. All legs during this time are without a doubt 3-wave affaires. If this continues it will start looking suspiciously much like a triangle, meaning that it must be either a B-wave or a 4th. As this entire leg down from $97.5 is supposed to be a large C wave, the only option is to classify this as a 4th wave. A sharp thrust down could start now, that is it might already have started, or this triangle still needs to finish d and then e before we get the “thrust”. We would definitely get out and stand aside. The chart below may be more convincing:

Buy low , sell high is the advice that should never be ignored. There are obviously times when buying high and selling higher works just as well but why handicap yourself. Clearly there cannot be any doubt that this stock is closer to a high than a low, in fact a move down to $30 would be a normal regression to the mean.

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