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Tonight's earning from Adobe, could impact software sector

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There is only one company expected to report earnings tonight, and that's software maker Adobe Systems (NASDAQ:ADBE) $36.60 -1.90. Adobe's stock has been range-bound this year between the $35 and $40 level for the most part, and tonight's earnings (positive or negative) could jolt the stock out of it past range.

Any type of "surprise" from Adobe (ADBE) could also dislodge the GSTI Software Index (GSO.X) from the 115 level and drive sector action tomorrow. Current trend for the GSTI Software Index is lower, but the group has been trying to hold its September lows.

GSTI Software Index (GSO.X) - Daily Chart

The GSTI Software Index (GSO.X) has been finding sellers at its mid-point of regression. Sector bears really haven't gotten the "capitulation" type action they've been looking for, and tonight's earnings from Adobe (ADBE) will be closely monitored.

While a bear wants "bad news" from Adobe, risk must still be assessed. Should ADBE beat estimates and provide any type of "upside guidance" then a software sector bear may rush to cover on a break much above the 120 level, as risk then is assessed to 132.

BMC Software Chart - Daily Interval

As mentioned yesterday, its becoming increasingly more difficult to find some stocks where bearish vertical counts give traders enough "downside" targets to make the stocks look longer-term attractive for a bear and at least keep their interest.

Today in the market monitor, I profiled a bearish trade in shares of BMC Software (NYSE:BMC) $15.66 -0.57% at the $15.55 level, with a stop on the trade at $16.25. This morning's rally met resistance near the 38.2% retracement level. Bears need some help from Adobe Systems (ADBE) tonight to put a further sour taste in the software sector, but a nice trader's target at $14.00 is possible on any negative news in the sector. The bearish vertical count of $8.00 is just bearish enough to have any bulls turning into eager sellers on a break of the $14 level.

I'm thinking some bears will be trying to leverage off the 50-day and 200-day MA's just above.

While BMC is not a component of the NASDAQ-100, I'm using the lower level of bullish % there, to tell me that I need to only be looking for some lower risk trades where resistance is close by so I can control my risk under any type of rally conditions. At the same time, I'm looking for stocks where bearish vertical counts still give "reason" for further bearishness.

Disclosure... I currently hold a bearish position in BMC Software.

Jeff Bailey
Senior Market Technician
Option Investor

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