Automatic Data Processing Testing Long Term Uptrend Channel; Profit-Taking Time?
Automatic Data Processing (NASDAQ: ADP) has been on a dream run to the upside since the 2008 and 2010 lows, rallying nearly 300 percent.
With the stock at all-time highs and testing the upper edge of a very long-term uptrend channel on the chart, it behooves those who are bullish to assess the fundamentals as well as the technicals of the company and the stock.
What The Bulls See...
• The stock is showing very good technical strength currently, trading above short, intermediate and long-term uptrend lines. So far, shares have shown no signs of any kind of turnaround.
• ADP has a reasonable valuation on a price-to-sales basis (3.29).
• The company sports decent operating cash flow and nothing troublesome on its balance sheet.
What The Bears See...
• ADP's price-to-book ratio is 6.01 and its price-to-earnings ratio is over 20.00 based on next year's consensus EPS estimates.
• The company is in a highly competitive industry.
• Technically, ADP is testing the upper edge of a very long-term uptrend channel and could, in theory, work lower over the short to intermediate-term.
The Technical Take
With that said, technicians appear to believe a pullback in ADP shares would not be a surprise.
In the short-term, they note $81.69 and $79.81 are uptrend line support levels. Below those two points, the next area of potential buying interest would come in between $73.00 and $76.00 –- the longer term uptrend support line.
Related Link: Altria Stock Edges Closer To Profit-Taking Time
Overall...
Automatic Data Processing's chart is still sporting several uptrend lines.
Although the stock is testing the very upper edge of the long-term uptrend channel, buying at current levels is likely a risky proposition.
Until the green uptrend lines on the chart are broken on the downside, however, traders and investors have to be operating in a “buy the dip” mode, while not getting too agressive on the short side.
Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.
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