Adobe Inc (NASDAQ: ADBE), the creative software giant, saw a significant drop in its stock value by over 13% on Friday following the release of its financial results for the first quarter of 2024.
Despite surpassing analysts’ projections for both revenue and earnings during this period, investors were taken aback by the company’s less optimistic forecast for the upcoming quarter.
Moreover, mounting apprehensions regarding increased competition from generative AI technologies and uncertainties surrounding the monetization of Adobe’s AI tools further contributed to the downward spiral of Adobe’s stock price.
$500: the magical figure for AdobeThe significance of $500 for Adobe’s stock cannot be overstated. As trading commenced last Friday, shares slipped below this symbolic threshold, plunging even further to a low of $485.
Despite a subsequent rebound, breaching the formidable $500 mark remained elusive, leaving Adobe poised at a critical crossroads.
But why does this seemingly arbitrary figure wield such influence over Adobe’s stock trajectory? The answer lies embedded within the annals of the company’s long-term financial charts.
Cast your gaze back to the tumultuous period following the onset of the COVID-19 pandemic in early 2020. Adobe’s stock embarked on a recovery journey, encountering a substantial obstacle at the $500 mark by mid-2020. Determined attempts were made to breach this barrier over the ensuing 12 months, only to be met with resistance.
However, the narrative took a decisive turn in mid-2021 when Adobe’s stock finally succeeded in surmounting this formidable resistance. The breakthrough sparked a rapid ascent, propelling the stock to $650 and yielding a commendable 30% gain.
Although this euphoria was short-lived, with the stock retracing in subsequent months, the $500 level emerged once again as a pivotal point. Fast forward to June 2023, and Adobe’s stock staged yet another breakout above the $500 threshold.
This time, it found reliable support at this level on multiple occasions. However, the recent breach of this crucial support, albeit just for a day, begs the question:
Could the stock be poised for further decline?Upon examining the long-term weekly chart displayed above, it’s evident that the MACD indicator turned bearish as far back as December. This served as a clear warning signal to bullish investors regarding the future trajectory of the stock.
$ADBE
Wicked drop Friday.
Now back to the same levels as August 2020. Sad.
With that said, give it 2-3 more days to let dust settle before diving in for a quick bounce play.
Yes there is a large gap around 440, which is another 10% downside “only”. Gotta be mindful of that.
Taking a closer look at the daily charts, the significance of the $500 level becomes even more pronounced. $500 aligns precisely with the 61.8% Fibonacci retracement level from the previous swing high at $638.25.
With the stock having breached the $500 threshold, the next potential support level lies at $457, representing a 50% retracement from the aforementioned swing high. Failing to hold at this level could see the stock seeking support around $414.
Currently, it appears that the bears are firmly in control of the situation. However, despite this bearish outlook, there remains a glimmer of hope for bullish investors.
The daily Relative Strength Index (RSI) has dipped into oversold territory, indicating a potential reversal may occur as investors who have been awaiting an opportunity view this as a favorable moment to initiate long positions.
Furthermore, it’s worth noting that the stock is still trading above its medium-term trendline as indicated in the chart.
Should Adobe manage to reclaim the $500 mark in the days ahead and sustain its position above it, it would suggest that Friday’s downturn was merely a temporary setback, thereby allowing the bullish trend that commenced in October 2022 to persist.
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