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Adobe Earnings Preview: Can a Strong Report Put a 20% Rally in Play?

A recent analyst report assigned a $770 price target on Adobe stock. Can the earnings report kickstart the move higher?

Adobe Systems  (ADBE) - Get Adobe Inc. Report has performed well: The shares are up 29% so far this year and 38% over the past 12 months.

That’s despite the stock’s recent correction of about 6% from the high in August to this month’s low. 

Despite Adobe’s strong performance, the correction is about in-line with the S&P 500, which has seen a 5.3% peak-to-trough correction so far.

Even though Adobe still generates solid growth, it has morphed into a more stable tech stock, sort of what we have seen with Apple  (AAPL) - Get Apple Inc. (AAPL) Report, Microsoft  (MSFT) - Get Microsoft Corporation (MSFT) Report and other FAANG names.

With the earnings report due after the close, though, bulls will be watching this one closely. Can it push back to new highs (as it did when it reported earnings in June) or do we need a deeper correction?

At least one analyst is confident, with Wells Fargo initiating the stock with an overweight rating and $770 price target

"We view Adobe as one of the crown jewels of software," analyst Michael Turrin said in a research note.

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Trading Adobe Stock

Daily chart of Adobe stock.

Daily chart of Adobe stock.

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A rally to $770 represents a gain of about 20% from current levels. Given Adobe’s performance, this measure certainly isn’t out of the realm of possibilities.

And Turrin is right: This stock has been a crown jewel within the tech sector.

So far, we’ve got a quick “ABC” correction down to the 50-day moving average, which generated a solid bounce from Monday’s low.

It also generated some divergence on the Williams %R measure at the bottom the page (blue line), as the stock made news on the month but this measure did not.

On a bullish post-earnings reaction, bulls want to see Adobe stock push back through $650 and reclaim the 10-day and 21-day moving averages.

If it can, it puts short-term downtrend resistance in play, followed by resistance between $665 and $670. If Adobe can clear $674, it will move to all-time highs and pave the way for a potential rally to $700.

Above $700 and the 261.8% extension is in play at $724.

On the downside, bulls will want to see Adobe hold this week’s low near $633, as well as the 50-day moving average. Given the close proximity, that may be a tough ask.

Below this week’s low and traders should keep an eye on the daily VWAP measure near $620, followed by $608, then the 21-week moving average currently near $590.

The last of these levels is about 8.4% below current levels and bulls are hopeful they won’t have to worry about that.