PAYCHEX'S STOCK RALLIES RIGHT UP TO KEY RESISTANCE – WILL IT BREAK OUT OR BREAK DOWN?

Paychex, Inc.

has inched higher over the last few weeks (since our last report on 9/3/2014) along with the general lift in the US large / mid cap equity markets. Now that the stock is trading just below “correction resistance” at $43.37, technicians are wondering if it – and the market – continue with its winning ways. What the bears see in Paychex… • A company that is playing “second fiddle” to ADP in the payroll processing and employee leasing space. • A company that simply is not cheap – with price-to-sales at 6, price-to-book at 8.5, market capitalization exceeding enterprise value and a price-to-earnings ratio north of 20 while its revenue and earnings growth projections for next year are well below 10%. • Finally, they see a company that technically is a laggard – both versus ADP as well as the broader market. What the bulls see in Paychex… • A company with zero debt and a healthy cash position of $1.82 billion • A company with good profit margins (12.42%) and good operating free cash flow of $1.82 billion. • A price chart that shows them having a chance to break out above resistance soon. The technical take for Paychex… Technicians note that after the most recent rally in PAYX, the stock is trading right below key “correction resistance” at $43.37. A break and close above that level will lead to additional upside in the short-term – at least up to $46. Any failure at or below the key resistance at $43.37 would lead to a serious move lower – perhaps down to $38.40 - $39.00. Until the $43.37 level is conquered, technicians say the benefit of the doubt has to be given to the bears. Overall… With very limited upside potential in the short-term, it would seem wise for the bulls to sit this one out and wait for the technician's anticipated correction in PAYX shares. Those willing to play PAYX from the bearish side of the fence can look to do at or near the technical resistance at $43.37 with stops in place on any close above $43.40