• Hot Stove Analysis

This morning we witnessed an unusual sell-off on strong earnings that could present us with a real opportunity next month.

Global construction equipment giant Caterpillar (NYSE: CAT) announced quarterly results that were better than expected. Revenue was up 18% to $13.5 billion, beating expectations of $13.3 billion, while earnings came in at $2.86 per share, $0.01 better than expected.

But management decided to keep Caterpillar’s full-year earnings guidance unchanged, and Caterpillar violently sold off on this news. You can see the sell-off in the chart below.

Caterpillar is widely viewed as an economic bellwether. So if it’s selling off on strong earnings, we have to wonder if the same fade will soon make its way to fellow heavy machinery maker John Deere (NYSE: DE), a company very similar to Caterpillar.

After all, if stocks are now falling despite strong earnings reports, it might be wise to position ourselves for downside ahead of John Deere’s earnings report 29 days from now – November 21. If the Caterpillar pattern holds, John Deere could soon find itself trading well below its recent support just above $130. And we can profit from it.