Add to Your Adobe Long Position

The software giant now has a chart that points toward higher profits.
By Richard Saintvilus ,

If you've waited for a better entry point to buy or add to your Adobe Systems (ADBE) - Get Report position, now's your chance.

The software giant now has a chart that points toward higher profits.

My June 20 buy recommendation on Adobe has delivered just 1% gains, and has yet to fully pan out. But a new 52-week high and some 10% gains is now in sight, thanks to Adobe reclaiming its key moving averages.

After a dip to $90.35 following Brexit fears, the shares have recouped more than 7% of their losses. The stock has a consensus buy rating and an average analyst 12-month price target of $110. It closed Friday at $96.79.

The recent rise in the share price is likely due to the fact that Adobe's estimates continue to rise. Just in the past 30 days, estimates for the current quarter and full year have risen by a penny and three cents, respectively.

Why are estimates rising? Adobe's second-quarter revenue, which climbed 20%, grew for the ninth straight quarter. Sales from the digital media business, including its Creative Cloud, soared 26%.

Adobe's technical metrics, both in the near term and long term, have also turned bullish. Take a look at the chart below, courtesy of TradingView.

Adobe stock closed Friday at $96.79, up 1.7%. The shares have risen 3% year to date, compared with 4.2% rise in the S&P 500 (SPX) index. The stock is back above its critical 20-day ($95.58 -- blue line), 50-day ($96.37 -- pink line) and its 100-day ($93.40 -- yellow line) moving averages.

The chart shows support at $95.79, while the resistance line is now at $100 per share and just below its all-time high at $100.56, reached on May 31. A new all-time high is just 3.9% away. If that move occurs, the stock's next move could be to $106.50, just below its consensus target of $110.

How to execute the trade: buy Adobe shares between $96 and $97.50, using $95.79 as near-term support. The bet is that the stock will test resistance at $100 in the next few weeks, sending the stock toward $105 and $106.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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