Investors were hopeful that Adobe Systems (ADBE) could break its brutal downtrend with this week’s earnings report.
Unfortunately, that’s not coming to fruition. Shares are down about 8% on Wednesday despite the company reporting an earnings and revenue beat for its first-quarter results.
The stock had rallied in six straight sessions ahead of the report, climbing 15.7% from last week’s low to Tuesday’s high. A bulk of those gains are being unwound as we speak.
It wasn’t last quarter that was the culprit. Instead, it was management’s outlook for next quarter that disappointed investors. Part of that muted outlook was due to Russia’s attack on Ukraine impacting Adobe’s European business.
With the dip, Adobe stock is currently 38% off its all-time highs made in November.
Ahead of the report, one Real Money contributor said that Adobe stock wasn’t ready for a recovery rally. Well, they nailed that one!
Let’s look at the chart to see if there’s any reason to build a case around buying Adobe down here.
Trading Adobe Stock
Chart courtesy of TrendSpider.com
I don’t like how poorly Adobe has traded. Even though many tech stocks are mired in a brutal bear market, others have been able to hold up. Apple (AAPL) has traded pretty well, as has Microsoft (MSFT) despite today’s data hack news.
Palo Alto Networks (PANW) — albeit a bit cherry-picked for this specific point — is at all-time highs. Yet Adobe has been stomped on.
The lack of relative strength is discouraging for a name that many consider a high-quality company. I know I consider Adobe that. Currently below all of its major daily moving averages, it’s hard to trust Adobe stock on the long side right now.
On the plus side, support near $420 continues to hold, but it’s also below the 61.8% retracement of the current rally from last week’s low. Truth be told, the current chart leaves a “muddled” feel to it.
What I’m watching specifically would be an undercut of this month’s low near $408 and for a potential tag of the 200-week moving average. That could set up some sort of reversal trade for the bulls, particularly if tech stocks can continue to show bullish momentum.
On the upside, a recovery of the 61.8% retracement puts the 10-day and 21-day moving averages back in play. Above these short-term moving averages puts the gap-fill near $450 on the table.
Should Adobe stock make a full recovery and surge off today’s post-earnings low, then the declining daily VWAP measure and the declining 50-day could be in play. All in all though, I remain cautious on this name right now.
