While other high-profile tech stocks rallied strongly this year, Adobe (ADBE) was stuck in a sideways trend.
Even an earnings beat in March didn’t lead to positive price action.
However, that all changed dramatically when we checked in on ADBE in June (red arrow in the chart below).
In the space of five weeks, ADBE had rallied 57%.
It briefly pulled back after another earnings beat. But ADBE surged again to fresh new highs.
Now momentum is steadily falling. So today I want to see what’s coming next…
An Emerging Rally Reverses…Twice
On the left-hand side of ADBE’s chart below, you can see where its year-long downtrend bottomed out last October.
ADBE’s fall petered out and reversed as the Relative Strength Index (RSI) rallied out of oversold territory (left red line).
Adobe (ADBE)
Source: e-Signal
The RSI did break up through resistance (green line), but it was unable to establish any sustained momentum.
Instead, the RSI tracked along the top of the support/resistance line from mid-November through mid-January. That kept ADBE in a tight sideways band too.
A promising rally tried to emerge but reversed later that month. Then in March, ADBE tried to rally again.
The RSI was once again rallying from oversold territory (middle red line). But this proved to be a false signal. The initial positive buying momentum started to wane.
ADBE’s rally only got underway when the RSI rallied out of oversold territory for a third time (right red line).
The 10-day Moving Average (MA, red line) broke higher and accelerated above the 50-day MA (blue line) in May. And the sharpness of that move showed the strength of the rally.
When we looked at ADBE on June 22, though, it had just pulled back from its recent peak at ‘A’ after announcing its Q2 earnings beat.
That move coincided with the RSI reversing from overbought territory (upper grey dashed line).
ADBE looked overstretched after such a strong rally. So we were looking for a potential move back into the $440–450 range if the RSI tracked back toward support.
However, that move failed to play out.
Take another look:
Adobe (ADBE)
Source: e-Signal
Adobe traded sideways for the rest of June. Then it broke higher with two new highs in July (upper orange line).
But the RSI is steadily trending lower (lower orange line). And that could soon drag ADBE down.
So what am I expecting from here?
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Falling to Support
If buying momentum keeps falling, it will eventually drag the share price lower too.
So what happens with the RSI will be key. It is now tracking back toward support (red circle).
For ADBE’s longer-term rally to remain intact, we’ll need to see the RSI hold support and remain in the upper half of its range.
A break below support could set off a sharp reversal.
We also need to keep a watch on the two MAs. They recently started to converge.
The 10-day MA breaking below the 50-day MA would add further confirmation of any emerging down move.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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