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.