Paycom Software, Inc. (PAYC) has doubled in the past 12 months and some "chinks in the armor" are developing despite the strong gains we've seen. Let's drill down into the charts and indicators to see how we should be positioning PAYC.
In this daily bar chart of PAYC, below, we can see a rapid rise in August and September. PAYC shows some minor support around $150 but the risk is for a sharp drop as there is just minor support in the $135 area.
Prices are above the rising 50-day moving average line and the bullish 200-day average line. Currently prices are extended above the 200-day line compared to the last 12 months.
The daily On-Balance-Volume (OBV) line has risen the past 12 months to confirm the price gains but it has leveled off in the past month.
The trend-following Moving Average Convergence Divergence (MACD) oscillator crossed to the downside in the beginning of September for a "take profits sell" signal.
In this weekly bar chart of PAYC, below, we can see some technical signals that should worry the longs. Prices are extended above the rising 40-week moving average line. The volume has not increased during the past year to support and confirm the advance.
The weekly OBV line only broke out to a new high in July.
The weekly MACD oscillator has begun to narrow towards a crossover and take profits sell signal.
In this Point and Figure chart of PAYC, below, we can see an upside price target of $203 but we can also see that a decline to $149.43 will weaken the picture.
Bottom line strategy: Prices are extended on the upside when compared to the popular moving averages. When prices are extended they typically correct by trading sideways or by correcting to the downside. The Point and Figure chart gives us an upside price target but it only looks at price reversals and ignores divergences. Traders should be prepared for a correction to the downside, in my opinion.