Adobe Reports in an 'Inflating Parabolic Bubble'

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Adobe Systems Incorporated (ADBE) provides software for graphic design, publishing and print production, with most of its applications delivered in the company’s “Creative Cloud.” The stock closed Tuesday, June 12, at $252.59 after setting a new all-time intraday high of $254.80. Shares of Adobe are up 44.1% year to date and in bull market territory at 44.1% above the 2018 low of $175.26 set as the year began on Jan. 2.

Analysts expect Adobe to post earnings per share of $1.54 to $1.58 when the company reports results after the closing bell on Thursday, June 14. The company has been a solid performer, beating EPS estimates for 17 consecutive quarters. This longer-term performance has the stock setting fresh all-time highs, including on Tuesday. Revenue from Digital Media, Creative Cloud and Document Cloud are expected to continue to drive earnings. (See also: Adobe Acquires Shopify Rival Magento for $1.7B.)

The daily chart for Adobe Systems  

Courtesy of MetaStock Xenith

Adobe Systems remains well above a “golden cross” that was confirmed back on April 6, 2016, when the stock closed at $95.40. A “golden cross” occurs when the 50-day simple moving average rises above the 200-day simple moving and indicates that higher prices lie ahead, and this was obviously a successful investment strategy for Adobe shareholders. The highest horizontal line on the chart is my quarterly value level of $202.96. Not shown on the chart is my monthly risky level of $267.93.

[Check out Chapter 2 of the Technical Analysis course on the Investopedia Academy to learn about using moving averages to develop your trading strategy.]

The weekly chart for Adobe Systems

Courtesy of MetaStock Xenith

The weekly chart for Adobe is positive but overbought, with the stock above its five-week modified moving average of $240.79. The stock is well above its 200-week simple moving average of $117.43, which is the “reversion to the mean,” last crossed during the week of Oct. 13, 2012, when the average was just $30.04. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 93.38, well above the overbought threshold of 80.00 and above 90.00, making the chart an “inflating parabolic bubble.”

Given these charts and analysis, investors should buy Adobe stock on weakness to the 50-day simple moving average, which is rising at $234.15, and reduce holdings on strength to my monthly risky level of $267.93. Buying at the rising 50-day simple moving average has been a successful strategy all year long. (For more, see: 7 Stocks That Are Speeding Past the Market.)

Source: Investopedia