PAYC chart chat

Someone asked me a TA question about this, so I will pretend like I can answer it.

I jumped the gun a bit on PAYC, not waiting for a volume breakout above 40. I caught a nice gain there although I think there was no follow through yesterday. What’s your TA/IBD take on PAYC now?…
The IPO market may be slowing down, but these three young stocks are making strides. Paycom Software (NYSE:PAYC) gapped up and soared to a record best, retaking a 41.68 buy point in massive trade. After the close Tuesday, the human-capital management software maker reported Q3 results that topped views. It also guided its Q4 revenue forecast to a range of $59.5 million to $61.5 million, above views for $56.3 million.
The stock has rallied more than 70% this year and has more than tripled from its offering price of 15 a share at its April 15, 2014, debut. Paycom ranked No. 3 In the IBD 50 in Wednesday’s issue.

So it had a breakout on 2x volume in late October and and IBD investor would know about the very good growth fundamentals of this stock and want to buy it on that move. The IBD rule is also that you would cut losses at 6-8% if a breakout fails and thus protect your capital from another investment. PAYC did in fact fall too much. I had already owned PAYC on the 1YEPG approach so did not sell (since I did not buy on the IBD rule).

IBD also says it is perfectly fine to re-buy a sold stock should it act better. In this case earnings caused it to gap up on huge volume and exceeded the old buy point of $40.68. The rule of thumb is don’t pay more than 5% above the buy point, but for a gap up like this there is an exception and you can buy outside that range.

Sometimes the gaps keep running (see Amazon) and sometimes they form a nice little shelf and take off again. (Sometimes they will fail). Dogma would say go ahead and buy at this level.

My take…if the stock fades but holds the buy point, you can buy a little more with the idea that it was good support. Having “jumped the gun”, you have much more profit to support a waiting game and would not be psyched out if it faded (on low volume). With no company specific news expected soon, one would not expect a meaningful selloff. The slight sell of on the second day was certainly of no concern and very typical, in fact it made all that back this morning, and as of this writing has held most of that.

The dogma says big investors have to move into a stock slowly so they don’t drive the price up (or down) on themselves, therefore small investors like us can take advantage of that and buy our whole position while the big boys are left to keep the stock rising for a while.

FYI, based on the pattern of this base, the buy point was the original high + 10 cents. If the base was a cup with handle, the buy point is based on the high of the handle instead of the peak of the original run. If it were a double bottom, the buy point would be based on the middle of the “W” of the pattern.

Conclusion: with your confidence in the 1YPEG and the strong chart action, it is a strong hold at the least. I believe Saul said he bailed because the earnings were too small even though they are growing fast.


Nice one Puddinhead
I really like the price action in this stock. When all our others were tanking and with or without earning reports this one held up and then moved up responding to the earnings report. This one is behaving itself the way so many others are not right now. I could use this normalcy!
Also nice to see breakouts supported by fundamentals.

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