The small rally comes ahead of the company's fiscal third-quarter earnings results after the close. Shares are down just over 9% from the highs it hit in July, as the stock has come under pressure like many other cloud-based tech stocks.
The difference here? Adobe's current valuation is much more reasonable than say, Roku (ROKU) - Get Report , Okta (OKTA) - Get Report or Shopify (SHOP) - Get Report . And while Adobe stock has been a solid performer over the years, its 24% year-to-date rally looks modest compared to the triple-digit returns that those three boast.
While both companies still sport very solid growth figures, they don't garner the love of growth investors the same way they once did. That's not necessarily a bad thing, but more of an observation with CRM stock down 3.4% over the past 12 months.
Let's take a gander at the charts.
Trading Adobe Stock
There's a lot going on in the chart above. Things become even more complicated given that a big move is possible when a company is reporting earnings. For Adobe stock, all it will take is a 5% move in either direction to propel it over or under several significant levels.
Let's look at both scenarios.
Should Adobe stock rally in reaction to its quarterly results, investors will desperately want to see the stock close above the 20-day moving average and downtrend resistance (purple line). The stock has been caught in a nasty downtrend that bulls need to see end before more upside can continue.
A 5% rally would put the stock at $296, above both the 23.6% retracement and the 50-day moving average. Should ADBE stock reclaim these marks, investors will need to see them turn to support in the coming sessions, and will likely turn their sights on a potential rally back into Adobe's prior consolidation zone from July, between $305 and $311.
On the downside, $277 has proven to be significant. That was a double-top high from last September and the low from last month. In September, $277 has buoyed Adobe stock multiple times.
Below it will summon the 200-day moving average and uptrend support (blue line), both of which have served as significant support multiple times this year. It should help that the 38.2% retracement is $271.79. Should this area fail as support, let's see if a decline to the 50% retracement is in the cards.
Trading earnings is tough, partly because the moves generally happen in the form of a gap, meaning investors don't have much (if any) time to react. Let's wait for the results and use the roadmap above to guide us in the respective direction. For what it's worth, the options market is pricing in a roughly 5% move by the end of the week. Let's see if it's right.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.