Deere & Company (DE) broke a losing streak of six consecutive quarters in which it missed earnings per share (EPS) estimates. On Nov. 27, the company beat Wall Street estimates, but weak guidance had the stock gapping lower at the open that day.

Shares of the heavy equipment manufacturer closed Nov. 26 at $176.65 and opened Nov. 27 at $168.50, a gap lower by 4.6%. Deere stock traded as low as $162.04 on Dec. 1, staying above its semiannual pivot at $160.91. The rebound on Friday was a failed test of its monthly risky level for December at $167.05.

The stock has had a reasonable performance so far in 2019, even though the company missed earnings and offered weak guidance. Deere has been around since 1837, but if you fast forward to 2019, the stock is up 10.8% year to date and in bull market territory at 24.5% above its May 20 low of $132.68.

The U.S. trade war with China has been a headwind for the stock, but demand from U.S. farmers has offset this drag. The stock is reasonably priced with a P/E ratio of 16.50 and a dividend yield of 1.86%, according to Macrotrends.

The daily chart for Deere

Daily chart showing the share price performance of Deere & Company (DE)
Refinitiv XENITH

The daily chart for Deere clearly shows that the stock has been extremely volatile over the past 52 weeks. The decline from its April 18 high of $169.99 to its low of $132.69 set on May 20 was a bear market crash of 21.9%. This was a buying opportunity as the stock tested its annual value level at $134.22.

The close of $165.71 on June 28 was an input to my proprietary analytics, and its second half semiannual pivot at $160.91 was a magnet between July 10 and Oct. 3, when it became a value level at which to buy. The close of $168.68 on Sep. 30 was another input to my analytics, and the stock's fourth quarter risky level is above the chart at $118.64. The close of $168.05 on Nov. 30 was the most recent input, resulting in a monthly pivot for December at $167.05, which was tested at the high on Dec. 6.

The weekly chart for Deere

Weekly chart showing the share price performance of Deere & Company (DE)
Refinitiv XENITH

The weekly chart for Deere is negative, with the stock below its five-week modified moving average at $170.23. The stock is well above its 200-week simple moving average, or "reversion to the mean" at $130.51. The 12 x 3 x 3 weekly slow stochastic reading ended last week declining to 72.90, falling below the overbought threshold of 80.00. During the week of Nov. 15 when the high was set, this reading was above 90.00 at 91.71 as an "inflating parabolic bubble," and the stock is 8.5% below the high.

Trading strategy: Buy Deere shares on weakness to the semiannual value level at $160.91 and reduce holdings on strength to the monthly risky level at $167.05.

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play. The close at the end of June 2019 established new semiannual levels, and the semiannual level for the second half of 2019 remains in play. The quarterly level changes after the end of each quarter, so the close on Sep. 30 established the level for the fourth quarter. The close on Nov. 29 established the monthly level for December.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.