Investiv Daily Sunday Edition

[Clues From The Ticker Tape – Do These Charts Spell Big Trouble Ahead?]( By Shane Rawlings on February 12, 2017 February 1, 2017, the share price of Automatic Data Processing Inc. – ticker ADP gapped lower intraday by -6.8% on heavier than normal volume. In technical analysis, often times a long running trend, whether up or down, will begin its reversal with what is known as a “breakaway gap”. A breakaway gap represents a gap in the movement of a stock price supported by levels of high volume. In the ADP chart below, you can clearly see what appears to be a breakaway gap on very heavy volume, as annotated in the blue volume bars below the price chart. Chart courtesy of Thinkorswim. Like most stocks, ADP has been in a relentless uptrend since the March 2009 bottom. So why am I interested in the price action on ADP’s chart? I’m glad you asked. Automatic Data Processing Inc. is a payroll company whose fortunes are heavily tied to the strength or weakness of midsize businesses with, on average, 50 employees, which is the lifeblood of the American economy. In the fourth quarter of 2016, new business bookings for ADP declined 5%, compared to a 15% growth in new business bookings in the same quarter of 2015. In addition, the company revised its previous guidance of 4% to 6% growth in new business bookings in 2017 to no growth at all. This slowdown is being blamed on uncertainties around changes in the Affordable Care Act (ACA), with the election of President Trump. I don’t doubt that speculation over possible changes, or a complete repeal of the act, is playing into the slower growth, as employers are less concerned about meeting the constantly changing and burdensome compliance requirements of the act, and therefore don’t see as much need for the services of companies like ADP. However, I wonder if there is something bigger at play in the recent bearish price action in shares of ADP. To understand what I mean, we need to go back in time just a bit. On April 2, 2007, the share price of ADP gapped down -9.2% intraday on heavier than normal volume. It then traded sideways for several months before really accelerating down as subprime panic and The Great Recession got into full swing. Chart courtesy of Thinkorswim. I didn’t feel it necessary to go back and see what the media rumblings were at the time the gap down occurred in April 2007, but I’m certain the weakness wasn’t being blamed on the possibility of an economic recession worse than any the US had experienced since The Great Depression. Of course hindsight is 20/20 and it’s now obvious that the April 2007 breakaway gap in shares of ADP was portending something much bigger than whatever the headline news might have been saying at the time. Something else I find most interesting is that the general stock market (S&P 500) didn’t top out until October 11, 2007,, some six months after the top in shares of ADP. Furthermore, shares of ADP bottomed on October 16, 2008, five months ahead of the March 2009 general stock market bottom. The reason I believe keeping an eye of shares of ADP is important is because their price action might be an early warning sign or canary in the coal mine indicator, since their entire business is based on employee/employer trends and whether companies are hiring or firing. Over the past several months, Sven Carlin, daily contributor to Investiv Daily, has been warning about a coming downturn in the stock market. He’s not advocating you sell everything and move to cash, but he is recommending you increase your cash levels and take a more defensive stance. He’s also been finding deep value in the most unlikely of places. You see, breakaway gaps don’t just happen at the end of an uptrend and beginning of a new downtrend, like we’ve discussed in shares of ADP. A breakaway gap can also kick off a new bullish uptrend after a long and protracted downtrend. I believe that is exactly what we are seeing in one of Sven’s most recent Global Growth Stocks picks – a company I believe could make early subscribers a tidy little fortune. Now, in all fairness, I can’t disclose the specific ticker symbol. That will be reserved for Charter Subscribers who will have the opportunity to become members of Global Growth Stocks in the very near future – and at a deep discount. But regardless, I believe learning how to spot both bullish and bearish breakaway gaps can dramatically improve the timing of your entry when purchasing shares in fundamentally sound and undervalued companies with large growth potential. Let me show you what I mean. This first chart is a monthly chart of the company Sven recently recommended in Global Growth Stocks. You can clearly see, from a technical perspective, shares of this particular company have dropped from a high of $54 to a low of $18, representing a -66% drop and creating a very technically oversold setup subject to a huge “snapback” rally. Chart courtesy of Thinkorswim. Now let’s take an even closer look at the bottom that occurred around $18 per share and see what the gaps might be saying about the future direction of this particular company. Chart courtesy of Thinkorswim. The first gap I’ve labeled in this chart is what is known as an exhaustion gap and is just what its name implies, a final gap exhausting the prior trend, just before a major reversal. In a downtrend, like this stock has been in for the last 18 months, an exhaustion gap will often occur near the exact bottom, on heavy volume, as sellers finally capitulate, throw in the towel, and sell out in disgust. What makes the investing opportunity in this particular company so compelling is that fact that just a few months following the exhaustion gap, shares spiked higher on heavier volume, creating a breakaway gap (labeled on the chart), which I believe is the beginning of a new and sustainable uptrend. Furthermore, since the exhaustion gap occurred, shares have now pulled back and are, in technical trading jargon, “filling the gap,” creating a perfect entry opportunity. But even more important than all the technical “clues” I’ve just outlined, shares of this company could soon skyrocket because the underlying fundamentals are bulletproof. Here’s a quick overview: - 10 year annual sales growth of 7.5% - 10 year annual earnings growth of 20% - 10 year annual book value growth of 11% - Forward PE of 11 - Return on equity of 17% - Minimal long-term debt - $665 million in cash - Huge exposure to growth in both India and China From both a fundamental and technical viewpoint, investing in this company right now could be the best risk-to-reward setup in the entire market. If you haven’t already added your name to the list of serious investors who will be notified when Global Growth Stocks officially launches next week [click here]( to automatically be added. Sincerely, Shane Rawlings Founder, Investiv [No Comments »]( | Filed under: [Global Growth Stocks]( [Investiv Daily]( [Recession]( [Sunday Edition]( | Tags: No Tags --------------------------------------------------------------- If you are having trouble reading this email, you may [view the online version]( This email was sent to {EMAIL} by Investiv, LLC 3400 North Ashton Blvd. | Suite 170 | Lehi | UT | 84043 [Forward to a friend]( | [Unsubscribe]( Disclaimers Investing is Inherently Risky There are risks inherent in all investments, which may make such investments unsuitable for certain persons. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities. You may lose all of your money trading and investing. Do NOT enter any trade without fully understanding the worst-case scenarios of that trade. And do NOT trade with money you cannot afford to lose. 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