NEW YORK (TheStreet) -- Shares of Adobe Systems (ADBE) , the maker of Photoshop software, set an all-time intraday high at $74.69 on June 18 and have been trading sideways to down since then. Even so, the stock is considered to be a momentum one given a positive but overbought weekly chart profile.
The 2014 high for Adobe was 71% above its tech bubble peak of $43.66 which was set in November 2000. Investors who are long on the stock have a big gain which should be protected by using a sell-stop given a weekly close below a key weekly moving average now at $70.65. Here's the logic behind this strategy.
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Adobe is scheduled to report its quarterly results after the closing bell on Thursday. Analysts expect the company to post earnings of 17 cents per share. Keep in mind that the stock set its all-time high on June 18 a day after the company reported better-than-expected results, as the shares rose 11%.
Also, during that time, the company announced new features of its cloud strategy. The positive news, though, was already priced in, and as many traders say, "Buy in anticipation, and sell the news."
After Adobe's stock traded as high as $74.69, it slumped 22% to as low as $58.51 on Oct. 15. Since then, the shares rallied 27%, trading as high as $74.10 on Nov. 28, which gave investors another opportunity to book profits.
Investors in Adobe ($69.85) should enter a good 'til canceled limit order to sell on strength at a key technical level of $80.80 and should place a sell-stop order below the stock's key weekly moving average of $70.65, which will be rising each week. The stock was below this level at Wednesday's close, but it's Friday's close that counts.
Investors looking to buy Adobe on weakness enter a good 'til canceled limit order to buy on weakness at a key technical level of $62.45.
Here's the daily chart for Adobe.
Courtesy of MetaStock Xenith
The daily chart for Adobe shows how the stock's momentum run stalled from its all-time high at $74.69 to the low of $58.51. The stock was below its 200-day simple moving average (green line) between Oct. 9 and Oct. 27, and then traded as high as $74.10 on Nov. 28 well above the 200-day SMA, now at $68.01.
Here's the weekly chart for Adobe.
Courtesy of MetaStock Xenith
The weekly chart for Adobe shows that the 200-week simple moving average (green line) was the staging area from which the longer-term momentum run began when this moving average was $29.95 in August 2012. The 200-week SMA is now up to $44.34
The weekly chart is positive but overbought with its key weekly moving average at $70.65. The momentum reading shown in red at the bottom of the graph is rising above the overbought threshold at $80 with a reading of $82.88.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates ADOBE SYSTEMS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate ADOBE SYSTEMS INC (ADBE) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."
You can view the full analysis from the report here: ADBE Ratings Report