Saturday, 14 July 2007

Show Me the Money!

Once in a while, I see something that is very hard to ignore. Especially when the chart jumps at me while I'm fighting to stay awake. Such is the case with Nasdaq 100 index issue Paychex (Nasdaq: PAYX).

At first glance, PAYX’s chart was easy to ignore. Although it seems that there is an inverted head & shoulders pattern, the volume just didn’t agree that this was what I thought was a strong pattern.

It is evident though, that PAYX is undergoing some consolidation as can be seen by the moving averages oscillating with each other and the MACD hovering around the zero line.

So definitely, something was going on but it was not yet clear what…until we zoomed out.

Upon zooming out to a bigger time frame, what we saw was a pleasant surprise.

I see that this initial inverted head & shoulders that I saw is actually the right shoulder of a bigger inverted continuation head & shoulders. At this point, it seems that volume may be confirming what we see despite the area pattern being secularized.

With this new development, we were now able to draw our neckline and find our breakout price. The neckline was situated at $42.24 on the day it broke out, July 13, 2007. As we project our upside target from the breakout point, we see that we can expect the price to go to $51.90.

This is one of the rare times that I have seen any head & shoulders pattern have a smaller head & shoulders pattern to be part of it. But it doesn’t end there.

Upon another zoom out view to see what the overall trend is, what I saw is another big head and shoulders that formed since end-2000 to 4th quarter 2005.

If I were imaginative enough, I can now even consider this to be a big cup with handle where the inverted continuation head and shoulders that we saw (2nd chart), is now serving as a handle, as some may see it as a symmetrical triangle.

However, I don’t think I’m going to go that far to wait for this to shoot up to the moon. I’m not that greedy. But for those who want to go really long for PAYX, it can probably go to $65. Of course, in my case, I’m probably satisfied with the target of $51.90 and I would have the option of keeping some just in case this does go up to $65.

For those who are looking for some meat in the chart, the latest word on the street is that PAYX directors have agreed to buy back $1B worth of their own shares.

But lest I be accused of turning into another trader, I just happened to read upon that news AFTER I saw the charts.

So show me the money, PAYX!

1 comment:

rowena said...

hi. got here thru noemi's blog. am really looking for a mentor. would like to invest in the stock market. hope you could help me and my hubby.