Let ‘Em Slug It Out
Don’t step into the middle of a fight.
That advice applies as well to Wall Street as it does to the back street — even when
the fight is over a great leading stock.Â
Take the battle between the bulls and
bears over Adobe Systems
(
ADBE |
Quote |
Chart |
News |
PowerRating). This is a great stock and a great company.
But the time has not yet arrived to buy for the intermediate-term trade.
San Jose, Calif.-based Adobe Systems
is the biggest maker of Web publishing software. The company’s Adobe Acrobat
file format has become a virtual standard for publishing documents on the
Internet. Shares have appreciated 130% from their February low, and the stock
closed on Thursday just 5% off its all-time high.Â
After the close, Adobe reported
quarterly results that topped Wall Street expectations. The company posted
operating net of 51 cents a share for the June 2 second quarter vs. analyst estimates averaging 48 cents,
according to First Call/Thomson Financial.
So great stock, great story, great
fundamentals. But equivocal trading action. As you can see from the chart, Adobe
shares have traded in a seven-week range between roughly 130 and 100.
 
The volume clues help tell the story.
I’ve ticked off the key price and volume bars for up days with black arrows, the
down-day bars with red arrows.
Notice how the up volume becomes
anemic near the highs, followed by down days on stronger volume. The stock is
finding clear support at 100, but no strong-volume follow-through to the upside.
No breakout to trigger a momentum buy signal.
However, the recent action within the
pattern looks increasingly constructive as the stock has firmed around 120.
You’ve got a lot of money sitting on
the sidelines as the market waits for the Federal Reserve to make up its mind.
The Federal Open Market Committee, which sets the official short-term interest
rates, meets June 28. When that uncertainty comes off the market, you could see
these firming but range-bound stocks break free.
Be alert also to the possibility that
the volume increases in a briskly traded stock like Adobe can be less dramatic
than in companies with smaller daily volumes. If the stock begins to creep up on
your buy point, try a weekly chart if the volume looks ambiguous on the daily.
Accumulation, if it exists, might show up better with a weekly focus.
Also consider scaling into a position
by thirds if the volume doesn’t quite knock your sox off, but the stock is
clearing your pivots. With big money waiting on the sidelines, some of these
stocks might start leading off ahead of the Fed’s pitch. Just play really good
defense until we get a clear signal from the market.
In the meantime, until Adobe takes out
its high of 132, I’d let the bulls and bears slug it out.