Quarterly reports from Adobe Inc. (ADBE) and Oracle Corporation (ORCL) will draw plenty of attention to the market-leading software applications sector this week, with both stocks trading close to all-time highs. However, solid metrics and bullish guidance will be needed to avoid major sell signals, driven by growing fears that a China-U.S. trade war will presage a major economic slowdown.
Oracle abandoned the Nasdaq exchange for the NYSE's greener pastures in 2013, replaced by Tesla, Inc. (TSLA) when Oracle relinquished membership in the Nasdaq-100 index. Shares of the old-school tech enterprise have gained a respectable 71% in the past six years, while Adobe has rewarded shareholders with historic returns, gaining more than 600%. Both issues have performed equally well so far in 2019, adding around 20%.
Adobe Inc. (ADBE)
Adobe reports second quarter earnings results after Tuesday's closing bell, with Wall Street analysts and market watchers now expecting earnings per share (EPS) of $1.78 on $2.7 billion in revenues. The stock sold off about 4% after Adobe beat first quarter estimates and lowered second quarter guidance in March, but it recovered those losses in just two weeks, lifting to a five-month high above $270.
Looking back, the stock broke out above multi-decade resistance near $50 in 2013 and entered a powerful trend advance that held up remarkably well during the 2015 into 2016 correction. That resiliency underpinned a June 2016 breakout that accelerated to the upside in the first quarter of 2017. The rally continued to post exceptional gains into September 2018, when shares topped out at $278, giving way to a volatile decline that hit a 10-month low in December.
The 2019 recovery wave unfolded at the same angle of attack as the prior decline, completing a round trip into the 2018 high in April. It broke out immediately but stalled quickly, easing into a test of breakout support that will soon enter its third month. Unfortunately for trend followers, this is an all-or-nothing scenario, with a rally above $282 confirming a breakout while a sell-off through the June low at $257 signaling a failed breakout that predicts much lower prices.
Oracle Corporation (ORCL)
Oracle is expected to report EPS of $1.07 on $10.9 billion in fiscal fourth quarter revenues during Wednesday's post-market release. The stock gapped down to a five-week low after Oracle beat profit estimates and met revenue expectations in March but bounced strongly, ending the session with an 11-cent loss. It posted an all-time high on the following day and added another point into April's peak at $55.53.
The stock topped out at $46.47 when the internet bubble burst in 2000, marking a lofty price level that didn't come back in play for more than 14 years. The subsequent decline found support at $7.25 in 2002, marking a low that hasn't been challenged in the past 17 years. It turned higher into the new decade, gaining ground within a shallow rising channel before initiating a final assault on multi-year resistance in 2014.
The rally ended just 24 cents above the 2000 peak in 2015, giving way to a broad consolidation, followed by a 2017 breakout that stalled in the low $50s in September. Two 2018 breakout attempts failed, while a 2019 uptick posted an all-time high at $55.53 before reversing in April and signaling a failed breakout. The stock bounced strongly in June but has still hasn't reinstated breakout support, adding considerable risk to this week's confessional.
The Bottom Line
Adobe and Oracle posted all-time highs in 2019 but still haven't clear major resistance levels, raising the stakes for this week's earnings reports
Disclosure: The author held no positions in the aforementioned securities at the time of publication.