Adobe Plunges 3.1% as Software Sector Reels from AI-Driven Sell-Off

Summary
• Adobe (ADBE) trades at $256.47, down 3.1% from its $264.67 previous close
• Intraday range spans $255.71 to $264.20, reflecting sharp volatility
• Sector peers like Microsoft (MSFT) also underperform, down 2.14%
Adobe’s intraday selloff mirrors a broader software sector downturn, driven by AI-related uncertainty and aggressive shorting. With the stock trading near its 52-week low of $255.71, traders are recalibrating positions amid shifting market sentiment toward AI-driven disruption and valuation concerns.

AI Disruption and Sector-Wide Jitters Fuel Adobe's Slide
Adobe’s 3.1% intraday decline aligns with a software sector selloff triggered by Amazon’s AI cost-cutting initiatives and hedge fund shorting. Analysts like Ellen Hazen of FL Putnam highlight memory bottlenecks as a sector-wide risk, while Citi’s Tyler Radke warns of selective buying opportunities. The stock’s proximity to its 52-week low and bearish technical indicators (RSI at 29.99, MACD -15.88) amplify near-term pressure. Sector-wide fears of AI-driven obsolescence, as highlighted in TechCheck and The Exchange, further erode confidence.

Adobe Trails Sector Leader Microsoft as Software Stocks Face AI-Driven Pressure
Adobe’s 3.1% drop outpaces Microsoft’s 2.14% decline, reflecting heightened vulnerability in application software. Sector-wide, infrastructure software (e.g., Palantir) shows relative resilience, while application players like ServiceNow and Adobe face sharper scrutiny. KeyBanc’s Jackson Ader advises favoring infrastructure over application software, citing AI’s disruptive potential. Adobe’s dynamic PE of 14.77, compared to Microsoft’s 28.3, underscores its valuation discount amid sector-wide profit-taking.

Options and ETFs Signal Aggressive Short-Term Plays Amid Volatility
• 200-day average: 353.61 (well above current price)
• RSI: 29.99 (oversold territory)
• MACD: -15.88 (bearish divergence)
• Bollinger Bands: Price at $256.47, near lower band ($261.16)
Adobe’s technicals suggest a potential rebound from oversold levels, but sector-wide AI concerns could prolong weakness. The Leverage Shares 2X Long ADBE Daily ETF (ADBG), down 6.18%, reflects leveraged bearishness. For options, focus on near-term puts with high leverage and liquidity:

• ADBE20260220P240
- Put option, strike $240, expires 2026-02-20
- IV: 45.95% (moderate volatility)
- Delta: -0.1677 (moderate sensitivity)
- Theta: -0.05836 (time decay)
- Gamma: 0.012826 (price sensitivity)
- Turnover: $20,845 (high liquidity)
- Leverage ratio: 142.10% (strong upside potential)
- Payoff at 5% downside: $12.47 (max(0, 240 - 243.64))
- This contract offers high leverage and liquidity, ideal for capitalizing on a potential 5% drop to $243.64.

• ADBE20260220P242.5
- Put option, strike $242.5, expires 2026-02-20
- IV: 45.73% (moderate volatility)
- Delta: -0.20315 (moderate sensitivity)
- Theta: -0.04815 (time decay)
- Gamma: 0.014516 (price sensitivity)
- Turnover: $3,474 (reasonable liquidity)
- Leverage ratio: 111.83% (strong upside potential)
- Payoff at 5% downside: $8.86 (max(0, 242.5 - 243.64))
- This contract balances leverage and liquidity, offering a 5% downside target with manageable time decay.

Aggressive bulls may consider ADBE20260220C257.5 into a bounce above $260.

Backtest Adobe Stock Performance
The ADP Services PMI (ADBE) experienced a total of 512 days with an intraday percentage change of less than -3% from 2022 to the present. The backtest results indicate a mixed performance across different time frames:1. Short-Term Performance: The 3-day win rate is 49.80%, meaning that approximately half of the time, the ADBE rebounds within 3 days. The average 3-day return is -0.08%, indicating a slight decline even as it bounces back.2. Medium-Term Performance: The 10-day win rate is 47.66%, which is similar to the 3-day win rate, suggesting a moderate likelihood of recovery within 10 days. The average 10-day return is -0.26%.3. Long-Term Performance: The 30-day win rate is 47.07%, indicating a high probability of recovery over a longer period. However, the average 30-day return is -0.36%, with a maximum return of only -0.01% over the backtested period.In conclusion, while the ADBE tends to recover from intraday plunges of -3% or more, the returns over the following days are generally negative, with the longest recovery period yielding only a slight positive return. This suggests that while the index may bounce back, the overall trend remains downward in the immediate aftermath of such events.

Adobe's Intraday Slide: A Buying Opportunity or a Deeper Downtrend?
Adobe’s 3.1% drop reflects sector-wide AI-driven uncertainty and technical overselling, but its proximity to the 52-week low and oversold RSI suggest a potential rebound. Sector leader Microsoft’s 2.14% decline indicates broader pressure, but selective buying opportunities may emerge if Adobe stabilizes above $260. Traders should monitor the 200-day average ($353.61) as a long-term resistance and watch for catalysts like Amazon’s AI cost-cutting impact. For now, short-term puts like ADBE20260220P240 offer high leverage, but a break below $255.71 could trigger deeper selling.