Adobe (ADBE) got caught in this year's software and SaaS selloff. It has bounced over the past month, but less than other software names. The stock is up 17% over the past year, still behind the S&P 500 (up 19%) and the tech sector (up 41.6%). Many software names remain below earlier highs, including Intuit (INTU), Oracle (ORCL), and Adobe (ADBE). Adobe (ADBE) sits near the bottom of the group.
The AI Risk
The main risk is not that generative AI directly replaces Adobe's tools. Someone who needs generative AI to make an image was probably not a heavy Photoshop user anyway. The real threat is that AI lets other companies build competing products that are cheaper or easier to use than Adobe's, with a less hostile customer experience.
Chart Levels
In the pre-market, ADBE dropped to around 275. Downside levels to watch are 265, then 250, which are recent relative lows. The chart has formed a rising wedge - two upward-sloping trend lines that move closer together. This pattern is often read as bearish, though it can break either way. A breakout to the upside, testing the upper boundary, would put these levels in play: 280 to 284 (highs after the gap down), 291 (where the gap began), then 299 and 306.
Moving averages line up around 284-285. The 5-day (dark blue) and 251-day (orange) exponential moving averages meet there - these stand for one week and one year. As of yesterday's close the stock sat at that support. With the pre-market drop, price is now closer to the 21-day EMA (monthly, shown in teal) near 273.
RSI momentum has struggled to reach overbought territory and has not pushed above 70. Earnings could be the catalyst that changes this.
The volume profile shows trading activity between 290 and 305. The heaviest trading area, the point of control, sits at 237 to 260, with the point of control itself near 246.
The Trade Idea
For a bearish view going into earnings: target the September 18th expiration, the next monthly, 14 days out, with an expected move of plus or minus about 9.8%.
The example trade: buy one September 18th 265/255 put vertical for a 2.50 debit.
- Max loss: the 2.50 debit paid.
- Max profit: 7.50, reached if the stock falls to the 255 strike.
- Risk-to-reward: roughly 1 to 3.
- Break even: 262.50, about 4.5% to the downside.
Since the expected move is around 10%, a 4.5% drop is well within range, especially if earnings disappoint. The setup looks for a slide after the report.
