Nasdaq 100 component Adobe Inc. (ADBE) reports first quarter results after Thursday's closing bell, with analysts expecting earnings per share (EPS) of $1.62 on $2.54 billion in revenues. The company met fourth quarter estimates in December, triggering an aggressive sell-the-news reaction that dumped the stock more than 7% in two sessions. Confusion may have generated the majority of downside at that time, with the late-year acquisition of automation software provider Marketo obscuring bottom-line results and forward guidance.

Sentiment has improved greatly in the past three months, lifting the digital media giant within eight points of 2018's all-time high at $278. Even so, Wall Street analysts have issued mixed messages, with Bank of America/Merrill Lynch raising its price target to $312 on Wednesday after February downgrades by Cowen and DZ Bank. Both bulls and bears will be listening closely during the conference call for additional disclosures about the acquisition's financial impact.

ADBE Long-Term Chart (1998 – 2019)

Long-term technical chart showing the share price performance of Adobe Inc. (ADBE)

The stock hit a four-year low at a split-adjusted $2.95 at the end of 1998 and turned sharply higher, breaking out to a new high in 1999, ahead of a parabolic buying wave that topped out at $43.65 in November 2000. That marked the highest high for nearly seven years, ahead of a downtrend that posted a long series of lower lows before finding support at a three-year low in the single digits in the third quarter of 2002.

That marked the lowest low in the past 16 years, giving way to a steady uptick that stalled less than three points under the 2000 high in 2006. The stock finally mounted that resistance level in the second half of 2007, but momentum failed to develop, topping out one month later after adding just five points. The subsequent reversal failed the breakout, generating a decline that accelerated during the 2008 economic collapse.

Adobe shares bounced in the mid-teens in 2009, while the subsequent uptick took more than four years to complete a 100% retracement into the 2007 high, yielding an immediate breakout. That buying surge signaled the start of a leadership phase that posted impressive gains into September 2018's all-time high at $277.61. Volatility spiked sharply in the fourth quarter, breaking major support in the $230s, ahead of a 2019 uptick that has healed the majority of the technical damage.

The monthly stochastics oscillator fell into a sell cycle in September 2018 but crossed over in January before reaching the oversold level, highlighting unusual relative strength. The turnaround has matched bullish price action that has now retraced about 80% of the 2018 decline. Unfortunately for bulls, the weekly indicator has just entered a sell cycle that predicts four to ten weeks of technical headwinds, suggesting that bears will prevail following this week's report.

ADBE Short-Term Chart (2017 – 2019)

Short-term technical chart showing the share price performance of Adobe Inc. (ADBE)

A Fibonacci grid stretched across the 2018 downtrend supports this cautious view, hitting the .786 retracement level in mid-February and whipsawing across that harmonic barrier into mid-March. The weekly stochastics oscillator reflects this ongoing conflict, generating a bearish crossover because the stock has failed to hold onto gains above $260. Even so, the bullish backdrop will continue as long as price action trades above the 50-day exponential moving average (EMA) near $250.

The on-balance volume (OBV) accumulation-distribution indicator also supports a mixed outlook, testing October's all-time high in December and posting a lower high in mid-February, at the same time the rally reached the .786 retracement level. Stealth-like selling pressure since that time may signal that institutions are taking profits and hitting the sidelines because they expect a downturn in the coming weeks.

The Bottom Line

Adobe reports first quarter earnings on Thursday evening after seeing its stock price lift nearly 30% in less than three months. Given these windfall gains, it may take a blowout quarter to avoid a pullback that targets the 200-day EMA at $240.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.