In looking at the chart, I believe Automatic Data Processing (ADP - Get Rating) is headed for a strong move lower, if it breaks this level.

ADP is one of the top providers of cloud-based human resources administration. The company’s solutions include payroll, talent management, and benefits administration. ADP has a strong business model with high recurring revenues, robust client retention, and low capital expenditures.

Take a look at the 1-year chart of ADP below with my added notations:

Chart of ADP provided by TradingView

Over the past several months,  a support level has formed in ADP at $130 (green). That line is also the “neckline” for the stock’s head and shoulders reversal pattern. Above the neckline you can see the head and shoulder pattern itself (red) has almost been completed.

Confirmation of the pattern would occur if ADP were to break the support, and lower prices would be expected from there.

A head and shoulders pattern is a bearish setup.  Therefore, a short trade could be entered on a break below the $130 level.

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Christian Tharp, CMT

Follow me on Twitter:  @cmtstockcoach

ADP shares were trading at $132.69 per share on Friday morning, up $0.79 (+0.60%). Year-to-date, ADP has declined -20.71%, versus a 5.44% rise in the benchmark S&P 500 index during the same period.

About the Author: christian

Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock. More...

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