This Is Adobe's Must-Hold Support Level if You Buy the Earnings Dip

Adobe is down slightly on Thursday after reporting earnings. Here's the level the stock must hold above or risk going lower.
Author:
Publish date:

Should investors use Adobe's  (ADBE) - Get Report muted earnings response as a buying opportunity?

So far, Adobe stock is down about 1.5% on Thursday after the software company reported earnings. 

That’s despite the company delivering a top- and bottom-line beat for its fiscal third quarter. Revenue grew almost 14% in the quarter, hitting a new record of $3.23 billion.

Operating cash flow also hit a fresh record. Guidance was solid too.

While the quarter wasn’t disappointing, it’s not sparking a rally within the stock or exciting investors enough to buy the stock. At the same time, it’s not really collapsing either.

Will we see a larger move in Adobe? Let’s look at the charts.

Trading Adobe

Daily chart of Adobe stock.

Daily chart of Adobe stock.

We’ve got a mixed bag with Adobe. A 1.5% post-earnings selloff — if we can call it that — is really a continuation of the selling we saw on Wednesday. In that session, shares shed 2.3%.

In all, the stock is down about 5% from this week’s high, (which is also the December high). That gives us a little bit more to work with.

I’m not crazy about Adobe’s post-earnings action, nor do I love the fact that shares are dipping back below wedge resistance after finally breaking out of this pattern earlier in the week.

However, I do love how much support is nearby.

The 20-day, 50-day and 100-day moving averages sit between $474 and $479. Rising wedge support comes into play near $470.

I like the setup because we have well-defined risk. A close below $470 not only puts Adobe below all of the support marks I just mentioned, but also the December low.

It could put $460 in play, followed by the November low near $440.

Those who go long now realize the market has been acting a bit tipsy lately. That puts even more emphasis on Adobe stock needing to hold that $470 risk mark.

The alternative to buying now and looking for support to hold, is buying on a rotation higher. Above today's high at $488.29 could allow Adobe to challenge the December and November highs at $499.29 and $502.53, respectively. 

Above those marks could put the October high on the table near $520, followed by the all-time high near $540.

But remember, this is more about what levels Adobe has to hold, rather than where the stock can go on the upside. It’s the age-old focus on risk over reward.