The decade-long ascent in Adobe (NASDAQ:ADBE) stock demands we view its current drop as a potential long-term buying opportunity.
The sloppiness of its chart and the persistent weakness of the broader market, however, suggest patience is warranted. Here’s why I think its best to wait for more evidence before buying ADBE stock.
Since Adobe stock calls the technology sector home, it’s worth analyzing the Nasdaq’s technical posture for clues as to where the overall space is headed. As I’ve mentioned previously, correlations are running hot, so it will be hard for Adobe to zig if its sector is zagging.
This week’s market rebound was a long time coming. Despite the giant gains, the trajectory of the overall trend is still lower. Not yet, at least.
Bulls have to be disappointed by Wednesday’s lack of followthrough. While the Nasdaq surged in the morning, gains fizzled by the closing bell. The PowerShares QQQ Trust (NYSEARCA:QQQ) still sits below all its major moving averages and has yet to carve out a definitive bottoming pattern.
As long as sellers continue to lean heavy into every rally, caution remains the watchword for bullish trades.
ADBE Stock Chop
Despite the peak-to-trough 34% thrashing, Adobe’s weekly trend doesn’t look half bad. Part of that is due to how quickly it snapped back from last week’s lows. The other reason it’s fared so well is the extreme overbought conditions that carried it into the crash. It had plenty of room to descend without breaking any critical support zones.
Its 50-week moving average is still rising, and last week’s rebound allowed the stock to bounce off of a key floor near $260. I remain optimistic about its long-term technicals as long as it stays north of $260. I know that’s a long ways away, but it’s the first reference point on the weekly.
The daily view reveals a push into bear country that has been much messier than what you can see on the larger time frame. Adobe stock is beneath its 20-day and 50-day moving averages. And it’s spent the past two weeks slicing back and forth through the 200-day moving average. We’ve seen so many overlapping candles that I get dizzy just looking at the chart.
This type of price action is the definition of chop and makes it almost impossible to build out a trade here. Worse yet, Wednesday’s session ended with bulls and bears at a stalemate. So here we stand — a doji candle in the middle of a sloppy range. I bet chart watchers everywhere are saying Adobe is a hard pass right here.
ADBE stock will be a better buy on a drop back to $260 or after it has returned to an uptrend above the 50-day moving average. Until then, steer clear.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!