Adobe is one of three S&P 500 components set to report earnings in the next week - but that’s not what gives it standout status.
Instead, it’s the fact that Adobe’s one of just 9.7% of the S&P 500 companies that’s 3% or less from its 52-week highs right now.
In fact, the shares set a new lifetime high on Friday. Year-to-date the San Jose, Calif., company has rallied nearly 18%, versus a 3.7% drop in the average S&P stock.
That recent performance matters more than you might think.
It might seem overly simplistic, but as I have been saying for awhile, buying what’s working leads to outperformance during crisis-investing regimes.
A look back at prior crisis investing environments over the past 3 1/2 decades, stocks that have positive six-month relative strength saw a 78.4% chance of a positive one-month forward return.
That’s about a 50% higher future win rate than the average S&P 500 stock.
At the same time, Adobe looks well-positioned heading into earnings Thursday.
Analysts are expecting adjusted profit of $2.32 for the quarter, according to a FactSet survey. That’s nearly 27% growth from the year-earlier quarter.
To figure out Adobe’s likely price moves this week, we’re turning to the chart for a technical look.
At a glance, it’s hard not to spot the bullish price trajectory in Adobe’s chart. This stock surged from the end of October, rallying hard in a nearly linear uptrend that gave way to the covid-19 selloff in mid-February.
But the shares have managed to pull off a rebound that’s left the broader market in the dust, as investors factored in the benefits of a cloud-centric business model amid a massive uptick in working from home.
Adobe’s stock made new highs at the tail end of May, and they’ve managed to hold that high-water mark since, consolidating above the $380 level.
Relative strength, the indicator down at the bottom of Adobe’s chart, has been in a nearly linear uptrend of its own since last fall, indicating that Adobe even now continues to systematically outperform the rest of the market.
That relative performance gauge remains one of the most important side indicators to pay attention to in this environment.
Likewise, earnings – even disappointing ones – are unlikely to derail the rally here.
Currently, option volatilities imply around a 3.6% one-day price reaction to second-quarter earnings. That’s barely enough to affect Adobe’s price trajectory right now.
For those reasons, now looks like a decent time for nimble investors to think about building a starter position in Adobe with a protective stop on the other side of the 50-day moving average, a level that’s become a decent proxy for support.
More risk-averse investors should wait for earnings risk to pass after Adobe reports.
Either way, the technical trajectory looks solid for Adobe heading into earnings this week.