How to Trade Adobe After the Company Reports Earnings - TheStreet

How to Trade Adobe After the Company Reports Earnings

Adobe is set to report earnings after the close of trading Tuesday. Here's how the stock is setting up ahead of (and after) the print.
Author:
Publish date:

Adobe (ADBE) - Get Report is catching a bid on Tuesday, up about 2% ahead of its earnings after the close of trading Tuesday.

This stock has traded quite well in recent months, riding the tech wave higher. Now commanding a market cap of almost $240 billion, Adobe is starting to find itself in the discussion of big tech.

It’s not quite a mega-tech name like Microsoft  (MSFT) - Get Report, but because of its cloud exposure and subscription-based revenue Adobe is being mentioned alongside names like Salesforce  (CRM) - Get Report, among others.

Now, investors are hoping they see a post-earnings reaction similar to Salesforce, which burst higher last month on better-than-expected results.

After topping out on Sept. 2, Adobe stock came under pressure like the rest of the Nasdaq. Can it regain its mojo on earnings and retest the highs?

Microsoft and Salesforce are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells MSFT or CRM? Learn more now.

Trading Adobe Stock

Daily chart of Adobe stock.

Daily chart of Adobe stock.

Notice how in April, May and June, the 20-day moving average was guiding Adobe stock higher. Then over the last three months that responsibility shifted to the 50-day moving average.

Some investors will say that’s a sign of waning momentum. That’s true to some degree, but I think it’s more of a sign of consolidation amid a larger rally. In other words, healthy digestion amid a bullish move. 

For instance, look at the early test of the 50-day moving average in early August. Shares tagged that mark, then quickly ran almost 25% to new all-time highs in less than a month. Until Adobe rotates lower and begins closing below support, it’s hard to be bearish.

Notice that Adobe hasn’t closed below the 50-day moving average during this run. Even amid the recent strong selloff, this mark held. Now, Adobe stock is reclaiming the 20-day moving average.

On a bullish reaction to earnings, let’s see if Adobe can reclaim the two-times range extension near $520. Above it puts the all-time high in play near $540. Over that mark and investors can look at a longer-term price target of $600, or roughly the 261.8% extension.

On a bearish reaction, watch the $460 to $468 area. There Adobe finds a notable breakout level, the 161.8% extension and of course, the 50-day moving average.

Below this area could put the $420 to $430 area in play, followed eventually by a potential dip below $400 to the February highs and June breakout level.