One Technical Sign Deere's Sell-Off Could Be Short-Lived

Deere & Company DE shares were hammered Friday, falling 6.2 percent in the wake of a disappointing Q2 earnings report. But if there were ever a silver lining to such a large sell-off, technical traders may notice that Deere’s drop may have helped improve the chart’s long-term technical picture.

Deere stock initially plunged as low as $112.87 on Friday before bouncing back to the $116 level. Although the dip to below $113 may have been brief, if completely filled the gap formed in Deere’s chart following its huge Q1 earnings beat back in May. At the time, Deere surprised to the upside, sending shares jumping from below $113 to above $119 the following day.

Mind The Gap

Experienced technical traders know that stocks in the middle of a long-term trend often retrace their primary moves to fill gaps that are created in their charts, such as the one Deere formed following its Q1 earnings report. As seen in the chart below, that big post-earnings move left a gap between around $114 and $118.

Related Link: Deere's Earnings Beat Not Enough To Boost Stock

In a matter of hours, Deere completely filled that gap on Friday, swinging wildly between a premarket high of around $119 and an intraday low below $113.

The good news for Deere investors is that these stocks tend to bounce once they’ve filled their gaps, which is exactly what Deere did in late morning trading. Traders should watch for a continuation of the move for confirmation and pay attention to whether or not the stock ends the week closer to the high end of the gap in the $117 to $118 area.

Bearish Alternative

Unfortunately for Deere bulls, there is another alternative. Deere actually has a second open gap in its chart that was created in November 2016 between around $92 and $97. If the stock trends lower into Friday’s close, it may be on a path to eventually close that lower gap as well.

Joel Elconin contributed to this story.