This Is Adobe's Must-Hold Support Level if You Buy the Earnings Dip

- Adobe is down slightly on Thursday after reporting earnings. Here's the level the stock must hold above or risk going lower. -

By Bret Kenwell, TheStreet.com

Should investors use Adobe's  (ADBE) muted earnings response as a buying opportunity?

So far, Adobe stock is down about 1.5% on Thursday after the software company reported earnings.

That's despite the company delivering a top- and bottom-line beat for its fiscal third quarter. Revenue grew almost 14% in the quarter, hitting a new record of $3.23 billion.

Operating cash flow also hit a fresh record. Guidance was solid too.

While the quarter wasn't disappointing, it's not sparking a rally within the stock or exciting investors enough to buy the stock. At the same time, it's not really collapsing either.

Will we see a larger move in Adobe? Let's look at the charts.

Trading Adobe

Daily chart of Adobe stock.

Chart courtesy of Stockcharts.com

We've got a mixed bag with Adobe. A 1.5% post-earnings selloff - if we can call it that - is really a continuation of the selling we saw on Wednesday. In that session, shares shed 2.3%.

In all, the stock is down about 5% from this week's high, (which is also the December high). That gives us a little bit more to work with.

I'm not crazy about Adobe's post-earnings action, nor do I love the fact that shares are dipping back below wedge resistance after finally breaking out of this pattern earlier in the week.

However, I do love how much support is nearby.

The 20-day, 50-day and 100-day moving averages sit between $474 and $479. Rising wedge support comes into play near $470.

I like the setup because we have well-defined risk. A close below $470 not only puts Adobe below all of the support marks I just mentioned, but also the December low.

It could put $460 in play, followed by the November low near $440.

Those who go long now realize the market has been acting a bit tipsy lately. That puts even more emphasis on Adobe stock needing to hold that $470 risk mark.

The alternative to buying now and looking for support to hold, is buying on a rotation higher. Above today's high at $488.29 could allow Adobe to challenge the December and November highs at $499.29 and $502.53, respectively.

Above those marks could put the October high on the table near $520, followed by the all-time high near $540.

But remember, this is more about what levels Adobe has to hold, rather than where the stock can go on the upside. It's the age-old focus on risk over reward.

From TheStreet.com