ADP STOCK TESTING UPPER EDGE OF LONG-TERM UPTREND CHANNEL – PROFIT TAKING TIME?

Automatic Data Processing, Inc.

has been on a dream run to the upside since the 2008 and 2010 lows – rallying nearly 300%. 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 long of ADP to assess the fundamentals as well as the technicals of the company and the stock. What the bulls are seeing in ADP right now… • The stock is showing very good technical strength currently (trading above short, intermediate and long-term uptrend lines) and has thus far shown no signs of any kind of turnaround. • ADP has a reasonable valuation on a price-to-sales basis (ADP comes in at 3.29 on that metric), • The company sports decent operating cash flow and nothing troublesome on their balance sheet. What the bears are seeing in ADP… • ADP's price-to-book ratio is 6.01 and the PE ratio is over 20 based on next year's consensus EPS estimates – compared to revenue growth in the low single digits and estimated EPS growth just above 10%. • ADP is in a highly competitive industry - where any slippage on their part can easily see their numbers dwindle. • 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. Technical take on ADP… Technicians say that ADP is definitely trading at the upper edge of the long-term uptrend channel and that a pullback would absolutely not be a surprise at this point. In the short-term, they note that $81.69 and $79.81 are uptrend line support levels. Below those two support levels, the next area of potential buying interest would come in at $73 - $76 – the longer-term uptrend line support. Overall… Automatic Data Processing, Inc.'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. However, until the green uptrend lines on the chart are broken on the downside, traders and investors have to be operating in a “buy the dip” mode and not getting too aggressive on the short side.