Wednesday, May 2, 2012

Bears threaten Automatic Data Processing (ADP) at support

Following yesterday’s morning rally and late-day paring of gains, markets were little changed today (May 2, 2012). The S&P500 and NASDAQ ended with equal and opposite percentage price change, up 0.3% and down 0.3% respectively; the DJIA closed down one tenth of a percent.

Today’s highlighted stock is Automatic Data Processing (ADP), a component of the NASDAQ-100. The company is best known as the generator of weekly payroll statistics, which are released at 8:15a Eastern on every Wednesday. Some view ADP payroll statistics as a leading indicator of government non-farm payrolls (NFP) data, which counts itself among those regular data releases that have the biggest market impact. Since ADP’s payroll number is released weekly while the government NFP is produced monthly, the ADP reading tends to be more volatile.

ADP, 4 y 1d

The daily-bars perspective on ADP, shown above, reveals little. Price action is contained by a remarkably lengthy channel, one stretching back 3.5 years; the flash crash on May 6, 2010 does break through, but only with intra-day data. Reactions against the primary upward trend are relatively subdued.

ADP, 180 d 1h

The hourly-bars chart is more exciting. A well-fitting price channel again cleanly defines peaks and troughs, but unlike the case above, the current price rests right at the support trendline. Moreover, price action tested the support trendline recently, on April 23rd, and only bounced weakly before reacting down anew. The stock appears poised for a downward break.

ADP, 20 d 5m

Further zooming into the most recent price action, ADP’s behavior is again well-modeled by a price channel, which instills confidence in the price channel -supported frameworks introduced above. The critical nature of the current price (about $54.6) is confirmed – that price marks the support level of price action of the past fortnight – and makes the technical analyst yet more inclined to follow this issue closely.

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