The AI bubble has driven up valuations across the tech sector, making it difficult to find stocks that aren’t already in overbought territory. But for those who want to dig deeper, there are still diamonds in the rough. Adobe (ADBE) is currently at an interesting crossroads, with one of my favorite setups, a mean reversion trade. (I discuss this trading method in detail in my book, Mean Reversion Trading.) Looking at the 9-month daily chart reveals several signs that support a possible rebound from current price levels. The white line on the support/resistance chart highlights the multi-month support zone around the $330 level. Over the past nine months, prices have reversed and bounced from this level numerous times. ADBE returned to this support zone and is now showing a sharp rebound after testing. MACD (Moving Average Convergence Divergence) MACD is often used as a reliable reversal gauge. Standard (12, 26, 9) settings are common, but can introduce delayed signals. Because of this, I often switch to (5, 13, 5) for faster reading. On the ADBE chart, the MACD line (blue) has just crossed above the signal line (yellow). These bullish crossovers are widely considered by chartists and technicians to be reversal signals. RSI (Relative Strength Index) The final piece of the puzzle is the Relative Strength Index (RSI). The RSI rebounded sharply after approaching oversold levels, further confirming this bullish setup. Interested in trading like this? My trading algorithm provides structure, rules, and discipline for options traders to outperform benchmarks. See it in action here. Trading Setup: ADBE 340-345 Bull Call Spread To take advantage of this setup to trade ADBE at $343, I am using a bull call spread. This is the strategy I recommend here as it offers both clearly defined risks and defined benefits. The structure is simple. Buy one call option and simultaneously sell another call at a higher strike price, both within the same expiration date. For this trade, we are targeting a bull call spread of 340-345. The maximum value of this spread is $5.00 (difference between strikes). If you can enter with a debit of about $2.50, your risk-to-reward ratio could be 100%. The winning condition is that ADBE ends with a short strike ($345) or higher before expiration. If that happens, the spread will pay out its full value. Specifically, if you trade 10 contracts, you are risking $2,500 for a potential profit of $2,500. Here is my exact trade setup Buy a $340 call, expiry November 14th Sell a $345 call, expiry November 14th Cost: $250 Potential profit: $250 -Nishant Pant Founder: https://tradewithmaya.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader Disclosure: Nishant has an ADBE bull call spread, November Expires on the 14th. CNBC Pro contributors expressed by are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliate companies, and may have been previously disseminated on television, radio, the Internet, or another medium. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The Content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for full disclaimer.
