It sure has been a roller-coaster ride for Adobe Systems Incorporated (Nasdaq:ADBE) this year. The diversified software company has made several large percentage moves due to news and earning’s surprises and is down more than 20% on the year in a strong market. However, there are several reasons I believe the stock could be in for higher prices in the near future.
Most importantly for me, the chart looks good. Adobe has put in a higher low and looks headed for new move highs and a possible gap fill. Something else to keep in mind is the idea of the January effect. Since the stock has underpeformed the market and lost value this year, investors could opt to unload the stock to offset capital gains in other investments this year for tax purposes. Come January, with the tax-motivated selling out of the way, the stock could perk up considerably. In addition, the company remains a potential takeover target with Microsoft Corporation (Nasdaq:MSFT) often mentioned as the most interested party. Despite revising down guidance in its third quarter report (which sent the stock down more than 20% overnight), Adobe management is bullish on future growth prospects for the company and thus resistant to a potential takeover.
The buy area on this trade is $29.30-$30 for a gap fill to the $32.50 area, and perhaps even higher in my opinion. The stop would be $28.75. I’m long in a tier one feeler position in Adobe.
*DISCLOSURE: Long ADBE
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