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Here’s How to Trade Adobe After It Reports Earnings

Adobe has been consolidating for months now. Will earnings be enough to trigger a breakout? Let's look at the charts.

Adobe Systems  (ADBE)  will report earnings on Tuesday after the markets close, but the stock has been struggling for direction for months now.

In fact, that has been the story for much of tech, at least when it comes to the larger market-cap companies

Most of tech topped out in late August and early September. However, around the time of the presidential election many high-growth stocks found another wave of momentum, helping drive the Nasdaq to new highs.

Those growth stocks lately though have come under pressure. As rising interest rates have been the narrative, tech stocks have struggled compared to the broader market.

Despite this, we haven’t seen much leadership from the larger market-cap techs such as Amazon  (AMZN) , Apple  (AAPL) , Adobe and others.

Investors are hoping earnings can help spur some bullish momentum for Adobe. Let’s look at the key levels.

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Trading Adobe

Daily chart of Adobe stock.

Daily chart of Adobe stock.

Like the rest of tech, Adobe topped out in early September. Unlike high-growth tech stocks, shares have not gone on to make new highs.

In fact, the stock largely remains range-bound, spending most of its time between $450 and $500.

Until Tuesday though, the bottom of that range had actually failed as support. Adobe stock dropped below $450, bottomed near $425 - which was most recently support in the summer - and rebounded higher. However, $450 was resistance until Tuesday.

The question is whether this is a one-day event and $450 will go back to resistance or can bulls keep the stock above this level?

The answer will boil down to how Wall Street receives Adobe’s earnings report. The last report was solid, but wasn't enough to break the stock out of its range. 

It doesn’t help that shares are running right into the 50-day and 200-day moving averages.

The silver lining is that a move over $475 puts it well above range support and back over all of its major moving averages. From there, it would need to contend with downtrend resistance, then $500 range resistance.

Above that puts the $525 to $530 area in play, where Adobe struggled in the third quarter.

On a bearish post-earnings reaction, let’s see how Adobe handles prior range support at $450. Back below this mark and the 21-day moving average puts the March low in play near $421.

If the stock really breaks down, the 21-month moving average could potentially be in the cards, although I don’t expect that type of decline.