Adobe Looks to Break Into Prior Price Channel

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Adobe Inc. (ADBE) shares rose more than 7% on Tuesday morning after the company reaffirmed fourth quarter estimates for revenue of $2.42 billion and earnings per share of $1.87. While this guidance  was slightly below consensus forecasts, investors were encouraged by the company’s projected 20% revenue growth and $1.4 billion in net new annual recurring digital media revenue for FY 2019.

In addition to this guidance, the company announced the limited release of its Project Aero AR product at the Adobe MAX conference this week. The private beta will include Apple Inc. (AAPL) products, like the iPhone and iPad, with desktop versions coming next year. Adobe hasn’t disclosed pricing yet, but AR products are becoming increasingly popular among consumers.

Earlier this month, Goldman Sachs analysts also recommended Adobe, alongside VMware, Inc. (VMW), as a way to wait out the Sino-U.S. trade war. The analyst reckoned that the software company’s high and stable margins would be more than capable of withstanding higher input costs from tariffs

From a technical standpoint, the stock broke down from its price channel earlier this month and nearly hit the 200-day moving average at $234.29 before rebounding higher. The relative strength index (RSI) appears neutral with a reading of 48.43, but the moving average convergence divergence (MACD) remains in a bearish downtrend. These indicators suggest that there could be some room for a breakout, but the trend remains bearish.

Traders should watch for a breakout from trendline resistance and S1 support at $257.12 to move back into the price channel. If successful, traders could see a move to the pivot point at $267.37 or upper trendline and R1 resistance at $280.19. If the stock fails to break out, traders should watch for a move lower to retest S2 support at $244.30 or the 200-day moving average.

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

Source: Investopedia

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