DE Gets a Smackdown

DE climbed to $126 earlier today, then it got a smackdown - closing near the lows of the day at $120.42. The volume was above average. The market behaved in this same manner - at one point today the DOW was up 138 points (+1%), but it closed down 146 points! Not good. We may see more downside tomorrow. Here's a daily chart of DE:

DE Update

I didn't end up placing a trade on John Deere (DE) on Friday. If I had placed a trade at my planned price ($122), I would have been stopped out - the stock dropped as low as $118.71 (2.7% less than $122). The market was bad, and it wouldn't have been a great idea to place a trade the day after a 311 point drop in the DOW. Yesterday (Monday), the stock traded in the same range as it did on Friday (Low:$119, High:$123.15), and closed near its highs. Buying some DE yesterday afternoon would have been a prudent trade - it was closing near its highs and MACD and Stochastics were looking just as good as they were last Thursday. This morning the stock gapped higher and climbed up to $126, where it met resistance at its 20-day MA. It dropped and is now trading at $122.50. Volume has been lackluster. I think 5% could have been squeezed out of this trade ($120 to $126), but the stock has been volatile, and the risk of getting stopped out is high. DE may start to climb, but I'd like to see more volume.

If DE looks attractive for a swing trade at $122, then why didn't I buy some at $119? Good question. One reason is that you shouldn't try to catch a falling knife. If you buy a stock on the way down, how do you know you're buying at the bottom? or that the stock won't continue to drop? There seems to be less risk in the trade if you make sure the stock is going to bounce. Another reason has to do with psychology - when you see DE drop to $119 you think: "I'm glad I didn't get in at $122, I would have lost money, I think I'll just stay away from this trade." If you're willing to take the risk, then anticipating the bounce before it happens probably isn't such a bad idea after all.

John Deere (DE)

Several stocks are running into their 50-day moving averages after the nasty day of trading today. RIO, POT, and MON are three I've seen. Another one is John Deere (DE). These could be good swing trade candidates. The bearish action today (DJI down 311 points) has me a bit scared to throw money into the volcano. Here's a chart of DE. I might man up and buy some tomorrow if it acts right. Click the picture to see full-size.


It closed today at $121.02.

It has key support at $120 (-1%).

It could hit resistance again at $132 if it bounces. (+9%)

That's a risk/reward ratio of about 1/9 - not too shabby!

I might buy 60 shares x $122 = $7320. I'll put a protective stop order at $119.90 (-1.7%, -$126) My price target will be $132 (+8%, $600). That's actually about a 1/5 risk/reward. The stock was quite volatile today, and it could be tomorrow, so getting stopped out is a concern. Timing my entrance will be key. If it takes off, I'll raise my stop along the way. If the market looks nasty again tomorrow, I might just wait it out and see how DE behaves. Could drop.

FLR Update

Here's a 10-day, 30 minute candle chart of Fluor: