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Apr 30

Entering Long Adobe Systems ($ADBE)

We’ll be adding a long in $ADBE at Wednesday’s open, bringing us up to 26 open positions.

It’s interesting this is the first new equity position for over a month, possibly a reflection of the fact that although many of our existing ideas continue to work, we hadn’t been finding many new opportunities. Until now that is. I’m suddenly seeing lots of good set-ups out there so we could be kept busy in the next week or so.

For now though let’s concentrate on $ADBE.┬áThis is one of those charts where I can take one look at it and know instantly I want it working for me. My task then is to find a legitimate reason why I shouldn’t buy it. But I can’t. And “It’s gone up too much” or “it’s overbought” aren’t legitimate reasons, and in any case they wouldn’t apply here.

Here’s the last 5 months on a daily chart. This is easy stuff. Acceleration higher, lengthy consolidation, resumption of uptrend, to where we are now: a 2-3 week sideways move.

AlphaCapture

I know some people like to wait for confirmation before buying breakouts, but I don’t need to because I’m going for more than just a breakout. If it continues to trend I’ll still be holding it when Bob Pisani’s talking about this year’s Santa Claus rally, not ‘Sell in May.’ So rather than trying to time it, I just want to own it and give it enough room that whenever it eventually does break and run higher I’ll already be in. But I don’t think we’ll have to wait too long.

AlphaCapture

Zooming in to the last 2 months, I like the volume that’s been coming in here on the rallies. Before Tuesday’s action we had 6 straight days of higher lows. I love seeing that. It tells you that even when the thing isn’t going anywhere the buyers are still the ones that are getting a little more anxious, willing to pay a little more than they did yesterday. It’s demand coming in at higher prices. Think about that. They see what’s going to happen here as well as we do, and they want in. They want to catch this thing before it goes on without them, and they’re raising their price limits every day as it slips away, like chasing a bar of soap around the bath.

Turning to the risk/reward, the upside will be met in short order by the all time highs around $48, but I’ll be honest, I really don’t think it’s going to stall there for long, if at all, as I think that’s what it’s already doing at these levels.

The initial stop is a little harder to pinpoint, as I’m not sure there’s one definitive level where you can say that’s it, it’s over, but I’m pretty sure it belongs in that $41.62-$42.18 area. This is a good example of why I say for stocks I’m a ‘rules-based discretionary’ trader. There are often situations where how something reaches and tests a level is more important than the level itself, and I still need to eyeball that to be sure.

That’s my discretion, and I’m comfortable using it for the best risk/reward trades of which I think $ADBE is one.

 

 

3 comments

  1. Kevin

    Hi, Do you think its a good idea to enter Long term (Jan 14 or Jan 15) in the money or near the money call options instead of buying stocks of ADBE? Please share your thoughts about buying options. Thank you!

    1. Jon Boorman

      It’s not an area I’m an expert in so I can’t readily compare the relative merits of playing options instead of the stock.

    2. Steven Chang

      I personally would not go that far. Today probably marks the first day of it going to testing $58.

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