Why I’m Paying Close Attention to This AI Stock’s Earnings

Larry’s Note: We’ve been talking a lot about AI because it’s one of the most exciting trends of 2023. Yet there’s nuance to the AI boom.

Not every “AI” stock has taken off the same way. And some of the big winners’ rallies are starting to look fragile in the near future.

That’s why I’m preparing a special event that I’m calling the 7-Day AI Blitz.

There, I’ll explain why you don’t just want to buy and hold a trend like this. Instead, there’s a specific window opening with an alternative play that could help you double your money – and even make as much as an annual salary in as little as a week.

This window is opening soon. But it won’t last long. So please, plan to join me on September 6 at 8 p.m. ET to learn more about this 7-Day AI Blitz that’s around the corner.

You can RSVP for free right here.

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After a lackluster start to 2023, Adobe (ADBE) took off in May.

Adobe has a stranglehold on the digital content creation, editing, and publishing market (with products like Acrobat Reader, Photoshop, and Lightroom).

But up until then, it had done very little for the year. It was trading no higher than it was in early January.

Yet the market began to appreciate the potential AI has for ADBE’s products, which could further enhance its dominant market position.

And its stock price gained 67% in just two months.

Additionally, ADBE raised its revenue and profit outlook in June. That also fueled the rally.

Now ADBE’s Q3 earnings are just a fortnight away. So today I want to see what’s in store from here…

A Resilient Uptrend

On the chart below, the 50-day Moving Average (MA, blue line) captures ADBE’s long-term trend.

You can see the tail-end of its fall from its November 2021 high, the slow climb off its October 2022 lows, and its sideways pattern in early 2023.

Adobe (ADBE)

Source: eSignal

Throughout early 2023, the 10-day MA (red line) meandered around the 50-day MA, showing a lack of direction.

However, you can see a clear change in May…

A strong upswing in buying momentum (red line in the RSI) caused ADBE to rally strongly. That took the RSI all the way from oversold to overbought territory in less than a month.

You can gauge the power of that rally by the rate at which the 10-MA broke and climbed above the 50-day MA.

When we last checked in on ADBE earlier this month (red arrow), we saw a diverging pattern between the ADBE stock price and the RSI.

ADBE had continued making higher highs (upper orange line) while the RSI trended down, making lower highs (lower orange line).

At the time, we noted that if momentum continued to fall, that would ultimately drag ADBE lower too. The key was what would happen with the RSI, which was about to test support (green line).

As the chart shows (red circle), although the RSI tested that support level multiple times, it was unable to fall below it.

Take another look:

Adobe (ADBE)

Source: eSignal

What’s more, the 10-day MA (which had been heading down) has reversed. Both it and the 50-day MA are now tracking higher.

So with ADBE expected to announce Q3 earnings around September 14, what am I looking for now?

Remain Vigilant

For ADBE to maintain its current up-leg into its earnings, we’ll need to see the RSI stay in the upper half of its range.

We’d then look for the 10-day MA to start accelerating above the 50-day MA as evidence that ADBE’s rally has traction.

The next test would be for ADBE to take out its July 31 high ($552.94).

However, ADBE and other AI-related stocks are already trading at high levels (earnings multiples). So we need to be vigilant for any potential pullback.

With ADBE and other AI stocks priced for perfection, any sell-off could be brutal if earnings disappoint in any way.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict