
Trade Adobe's Charts Ahead of Earnings
Shares of Adobe Systems (ADBE) - Get Report have been under pressure, falling more than 5% since the stock reached its all-time high of $100.56 on May 31. With the shares now below tow key moving averages, it would seem the market is in "risk-off" mode when it comes to Adobe stock.
But that's a buying opportunity. If the company beats on earnings expectations, the stock could reach $105, delivering 10% gains.
Adobe shares closed Friday at $95.58, down 1.66%. The shares are up 1.75% so far on the year, compared with a 1.33% rise in the S&P 500 (SPX) index. But valuation concerns for digital software specialist have crept in. This is because despite the slight pullback in the shares, the stock is priced at 33 times forward estimates of $2.84 per share, which is more than twice the S&P 500 index. Tons of future growth is already priced into the shares.
Adobe's second-quarter earnings results are due after the closing bell Tuesday. Growth hasn't been an issue for the company, as evidenced by its nine straight quarterly earnings beats. The Adobe chart points to a solid momentum trade of 8% to 10% in either direction Tuesday. The bet is that the move is higher.
Take a look at the chart below, courtesy of TradingView.
Since Adobe stock topped out at $100.56 (the solid red line) on May 30, the shares have been in reverse mode, falling about 1.16% in past four weeks. Based on Friday's closing price, Adobe is now below two critical benchmarks: its 20-day ($98.29, the blue line) and 50-day ($96.41, the pink line) moving averages. The stock has also fallen below near-term support at $97.85 (the gray line) and appears heading toward next-level support at $94.79 (the solid blue line).
This is where Adobe's fundamentals are poised to take over. The stock surged as much as 9% from around $89 to $98 per share following its earnings beat in March, driven by the company's strong guidance. A similar move from this level on Tuesday could drive the stock to around $105. Given Adobe's beat-and-raise history, it could head to $110 -- its consensus price target -- in the weeks that follow.
How to execute the trade: Buy Adobe shares at $95 to $96.50, using $94.79 as near-term support. If it falls below that level, exit the position with a small loss and live to play again.
The bet is that the company will beat on earnings and guidance, sending the stock back above both the 20-day and 50-day averages and toward $105 for 10% gain.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.










