Shares of two- and three-dimensional software maker Autodesk, Inc. (NASDAQ:ADSK) struggled last week after the company reported its latest quarterly results and issued a weak forecast for the full fiscal year. ADSK stock, which has been flashing warning signs for a couple of months, is now flirting with a more serious breakdown that could reward the bears as shares gain downside momentum.
For its first quarter, Autodesk earned 30 cents per share to beat Wall Street estimates by 2 cents. On the top line, revenues of $646.5 million topped the $636.6 million that analysts were looking for.
Still, while both figures beat earnings, and while ADSK saw 19% and 9% growth on a year over year basis in the Americas and the EMEA regions, respectively, investors were displeased with the company’s outlook for the full year. Autodesk lowered its outlook from a previous guidance of $1.05-$1.20 down to a new range of 95 cents-$1.10 — below the $1.17 that analysts were looking for.
ADSK Stock Charts
Starting off with the multiyear weekly view of the charts, you can see the increasingly heavy weight hanging around the neck of ADSK stock. Shares showed a steady increase off the 2009 lows, followed by an acceleration and steepening of the slope in the summer of 2013.
However, this acceleration came on quickly waning upside momentum, as the series of lower highs of the Relative Strength Index (RSI) clearly shows at the bottom of the chart. As such, Autodesk’s price movement over the past two years could also be looked at as a rising wedge pattern, which has bearish implications once the support line is broken.
From this angle, a serious mean-reversion move could see ADSK stock move back toward its 2009 uptrend line, which currently comes in around the low $40s.
Looking at the daily chart (and still keeping that weak upside momentum in 2013 in mind), we see that ADSK stock in February gave us a classic breakout/fakeout more that briefly broke the stock above its November 2014 highs before quickly reverting lower again. Autodesk then revisited the breakout line (black horizontal) in April, but it failed and was sent back lower.
By early May, ADSK stock again attempted a little oversold bounce; however, this one failed much lower than the previous rallies, namely at a confluence resistance line made up of the 100-day simple moving average (blue line) as well as the broken October uptrend line (red dotted line).
Last Friday, Autodesk fell nearly 2% and is now flirting with taking out its early May lows. Doing so would trigger a better downside momentum move toward the $50 area.
Active investors could look to sell ADSK stock short around current levels or buy at-the-money puts with at least a couple of months of time value remaining.
As usual, any major bullish reversal would quickly call off this short-side trade idea.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
