Autodesk Struggles To Break Resistance - Pullback Coming?

The more you knock on a door that’s not being answered, the more likely you are to turn around and walk away. From a technical perspective it’s similar with stocks when they’re trying to get past a certain level of resistance. The longer they spend trying, and failing, to get through, the more likely they are to turn down.

That’s where shares of engineering software giant Autodesk (NASDAQ: ADSK) find themselves now in the middle of August. Like many other tech names out there, they caught the wave of risk-on sentiment that bought into innovation in the aftermath of March’s crash. Despite a 40% fall, shares had undone the damage and were back to pre-COVID heights by June and have pushed on to all time highs since. All in all, they’re up about 90% from Q1’s low.

Tight Range

That being said, they’ve traded in a narrow range since the middle of June and have struggled to break through the $245 level and hold it. At the same time, there have been buyers found at the $229 level any time shares have gone down there. But for a $50 billion company, a 6% trading range is too tight to hold for long and it feels like a decisive move in one direction is coming.

When thinking about what direction that move could be in, it’s worth getting a feel of the broader market. Autodesk shares are essentially flat since the middle of June while the S&P 500 index has managed to tack on 8%. But the benchmark index is facing major resistance of its own as it comes within inches of February’s all-time high, while its RSI is right around 70 which indicates overbought conditions. If there was a time for Wall Street to start taking some profits from this summer’s rally, this is it.

That means that any stocks which are looking tired are certainly going to be pulled down and with Autodesk having failed to push on to new highs while the S&P 500 was still rallying, it looks pretty sleepy. It’s worth noting that it had a negative MACD crossover at the end of June and that’s been trending towards negative territory since. The last time that happened was on the 20th of February.

No Upgrades

The company has also lacked any meaningful upgrades from Wall Street in recent weeks to justify another move higher while many of their peers have been picking them up on a weekly basis. In fact, the most recent update from the sell side was a downgrade in May from Bernstein. They cut their rating on Autodesk shares to Underperform from Market Perform and slashed their price target to $155. Shares have gone the opposite direction since and are up more than 30% since that downgrade which makes the existing gap all the more glaring.

Analyst Zane Chrane noted at the time how "the depth of this recession, and the secondary economic ripple effect, will stifle near-term revenue growth more than investors expect.” The company’s exposure to smaller businesses could also result in "higher churn, less new customer adoption, and reduced expansion with remaining customers" for at least the next year.

While the economic recovery has certainly seen some acceleration since then, COVID also hasn’t gone away, and it’s looking like we’re going to see a return to the lockdown measures of March and April before the year is out. This will of course hurt Autodesk’s core revenue lines and we saw in March just how exposed the stock is to something like that. With shares currently 12% higher than their pre-COVID levels, aren’t they looking a little vulnerable?