A big winner in last year’s AI rally was Adobe (ADBE).

The digital content company’s products include popular software like Acrobat, Photoshop, and Dreamweaver. And it rallied from $331 in May 2023 to $638 in early February this year. That’s a 93% gain.

But after hitting that peak, ADBE reversed sharply. ADBE’s disappointing forward revenue guidance exacerbated the fall.

Now ADBE potentially looks oversold.

So let’s check out where it could be headed next…

Crossing the Signal Line

The chart of ADBE below shows its clear uptrend from May 2023.

The 10-day Moving Average (MA, red line) accelerated above the 50-day MA (blue line). And both MAs tracked strongly higher.

Adobe (ADBE)

Source: eSignal

That rally began with the Relative Strength Index (RSI) rising from oversold territory (lower grey dashed line).

ADBE accelerated as the RSI gained traction in the upper half of its range (above the green line).

That bullish move also happened as the blue MACD line crossed above the orange Signal line with both moving in their upper range (above the 0.00 line).

ADBE consolidated in a sideways pattern from August to October. Then it rallied again…

Once more, the RSI and MACD returned to their upper ranges, and the 10-day MA accelerated back above the 50-day MA.

After hitting its peak in late December 2023 (‘A’), ADBE retraced before hitting a new high in early February (‘B’).

Take another look:

Adobe (ADBE)

Source: eSignal

But while ADBE was making higher highs (upper orange line), the chart warned of a potential correction.

The RSI made lower highs (lower orange line), showing declining buying momentum.

The MACD also made lower highs (red line). The MACD line bearishly led the Signal line below the zero line and into its lower range.

Both have remained there as ADBE’s sell-off developed.

Then ADBE gapped lower due to its Q1 earnings in March. Despite beating revenue and earnings estimates, ADBE sold down because of slightly lower Q2 revenue forecasts.

The RSI has been bouncing along oversold territory this month. Yet both the RSI and MACD recently started rising.

So what am I watching around here?

Breaking Resistance

For ADBE to rally from here, this promising move in the RSI needs to develop into something bigger. It must break up through resistance (green line) and get a foothold in its upper range.

If the RSI rebounds lower, though, then any rally will be short-lived and ADBE has further to fall.

I’ll also be watching for the MACD to cross above the Signal line and back into its upper range (above the zero line). That would be further evidence of a genuine rally developing.

Beyond that, keep an eye on the 10-day MA. It will need to accelerate above the 50-day MA for a longer-term rally to resume.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict