Friday, 05 November 2010
I thought Friday would be the perfect time to bring you a bit of technical analysis insight. This week’s stock market chart just blew me away when I saw it and thought it would be a great candidate. Adobe systems, the Silicon Valley software creator, should not only be known as the creator of PDF’s and flash players, but maybe also for the enormous and frequent “gaps” in its stock price.
Adobe Versus Apple
Before we get to those gaps, there is one thing that we need to talk about and that is the ongoing feud between Adobe and Apple. You see, Steve Jobs doesn’t like flash and doesn’t want it in his devices. In a letter to investors (and the public) Jobs noted six reasons why Apple doesn’t run flash on any mobile devices and the iPad. I don’t know about you, but going head to head with Apple would not be on my wish list this Christmas.
Apple is obviously a dominator in mobile and personal computers and a force to be reckoned with. Flash is a very profitable product for Adobe and they will do what they can to make it work. It’s a battle that both want to win at just about any cost.
Enter Skyfire and their new browser, which bears the same name. Skyfire provides iPhone and other users a way to view videos and other content that is flash-based. So if you have been dying to watch or play anything flash on your iPhone, a solution is here. Skyfire is not related to either company and they actually halted sales due to the overwhelming demand.
Will this hurt or help Adobe?
Apples shares seemed to like to the news, but Adobe stock is not looking as strong as it should have when the markets were screaming yesterday. .
Stock Market Chart Patterns
There are 2 big issues with the chart you see above. The first is the giant bearish channel the stock is currently in (indicated by the blue lines). Even with the gap up where it broke the channel, it found itself dramatically right back in it. This is a bearish sign for the near-term.
If you couple that with the fact that we have just closed the most recent gap and are headed for huge resistance at $30 (thick red line), which is not only resistance from a previous gap and a failed run past it, but more importantly, the $30 was the spot at which tried to break the channel and had a horrific failure, after it jumped all the way above $33, but came crashing back down to $27.
The chart above is telling me that if you are in Adobe with a long position, you should be extremely careful as the stock approaches $30. Couple that with the fact that earnings are due out on December 20th, and you could have a catalyst for a sell off if Adobe can’t close above $30 with momentum.
Gaps, (highlighted in yellow) can do funny things to a stock price. Many traders look for gaps to be filled, in other words, they want the stock to return to where it was pre-gap. If the stock fails to do so, it can be a bearish sign if the gap is down.
Don’t get too attached to the only saving grace for Adobe which was the fact that it did temporarily eclipse its bearish channel, but the stock tried to fill and failed, so that tells me it most likely won’t occur again for some time.
How Do You Trade it?
If I were in Adobe long at this point, I would be looking for an exit around $30, at least until earnings are released or we can establish a bit more of a support in the stock price. Even though the MACD looks to have some momentum, proceed with caution.
P.S. If you want to polish your technical analysis tactics, my colleagues and I discussed chart patterns and many other methods of analysis and ideas at our annual 2010 Global Opportunities Summit in Las Vegas. The beauty is that the recordings are now available so you can listen at your leisure, they are relatively inexpensive and well worth it if you want to increase your investing tactic arsenal.
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Other Related Topics: Consumer Electronics , Jared Levy , Mobile Phones , Smart Investing Daily , Technology Industry , Telecommunication
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