While SpaceX stole the show last week with the biggest IPO in history, Adobe found itself on the opposite side of market sentiment. The illustration and design software company lost another 19% of its market value last week despite beating estimates and raising its outlook for the year. What investors focused on instead, and punished the stock for, was the abrupt resignation of Adobe’s CFO shortly after the CEO announced his departure. Top executives leaving is not something the market is going to easily forgive, especially at a time when the business model is allegedly being disrupted by AI.
We side with ‘Big Short’ Michal Burry here, however, who says that top-notch companies have been left for dead because of AI hype. Indeed, if Adobe’s financials are any guide, AI has yet to make a dent in its results. But if there is one thing everyone agrees on about the market, it is that you can’t argue with it. The stock dipped below $200 per share last week, down 72% from the all-time high of $700 it reached in 2021. Given its growing revenue and single-digit P/E ratio, can a bullish reversal be expected soon?
The Elliott Wave chart above is giving us a hint. It reveals that the post-2021 decline is most likely a W-X-Y double zigzag correction, following the long and strong uptrend preceding it. Wave W was a clear three-wave structure, marked (a)-(b)-(c). Wave X could be mistaken for an impulse pattern if it wasn’t for the fact that it was entirely erased by the next leg down in wave Y.
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If this count is correct, the current sell-off must be part of wave (c) of Y. Waves 1-through-3 seem to be in place already, which means that waves 4 up and 5 down are all that’s left of Adobe’s painful bear market. Once it is over, the preceding uptrend should resume, although right now this sounds just as crazy as the idea of a 70% crash did in late-2021. Nevertheless, a bullish reversal in the area around $150 a share makes sense despite the AI disruption narrative.
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