The Creative Cloud is Oversold

Creative software giant Adobe (ADBE) has ironclad support at $440 on a technical basis and I am willing to go on a 13-day excursion with the underlying stock.

That being said, the macroeconomic picture leaves a lot to be desired and one could literally say that 100 times.

Many of the risks have yet to be unlocked if one rolls through the list of them like hyperinflation, spiking energy costs, the military conflict, rising rates, poor global government, and the list really could be added to for infinity at this point.

No need to beat a dead horse.

However, this breathtaking relief rally has turned into something that is probably more than just a relief rally and has told us investors one thing.

There is still way too much liquidity in the system and it’s still sloshing around.

And although I missed the bottom of the relief rally, I seek to benefit off the next stage of it with ADBE and GOOGL which are two highly sought-after tech stocks with a proven track record and whose technical picture looks positive in the short-term.

The cheat sheet for this exam is Apple (AAPL) whose bounce from $150 to $180 really summed up what’s going on in the tech ecosystem.

The best of breed is harvesting the bulk of the gains, and instead of fighting it from the other side, I’ll just traverse on the side of Apple and ride it up with them.

The dip-buying has been almost violent in this rally and although I do believe there will be some reduction in the pace of the up moves, it’s almost impossible to go completely bearish against tech right now.

Another key insight into recent stock movement is that the nominal size of the stock market at this point is so gigantic in terms of market cap that the leverage inside of it is causing volatility to go nuts.

I don’t think this will resolve itself in the near future and this sets the stage for some series of epic up moves moving forward to the second half of the year as a large swath of negativity has been priced into the news.

Tech could go back to its overshooting the rest of the market narrative and names like ADBE and GOOGL will perform splendidly with this type of boost.

Let’s get into the weeds and explain why I really do like ADBE as a standalone company?

The massive slide over the past few months was nothing structural. ADBE posted market-beating earnings for the first quarter, growing cloud revenue, one of the biggest markets in the tech world, to more than $2 billion. The firm has also been steadily shot up the digital subscription revenue ladder.

Yes, their product lines are slowing but they are at the cutting edge of digital innovation which with its terrific brand has great pricing power.

ADBE has transformed itself into a software behemoth, more than tripling its revenue since 2010. The company is famous for its namesake PDF-reader and photo-editing software Photoshop.

However, ADBE’s bread and butter is a full suite of software products monetized through a recurring subscription model.

ADBE transitioned from selling boxed software to recurring subscriptions in 2013 and revenues have gone parabolic since.

Readers must be practical at this point and not focus attention on the low end of tech.

Tightening conditions in the capital markets mean that there will be less resources to throw at the poor-quality tech names.

Practicality should be the foot forward with readers piling into the best of tech like APPL, AMZN, GOOGL, ADBE, and MSFT.

Don’t get too cute here.

Traders never go bankrupt from taking a profit.