Shares of security services company ADT Corp (NYSE:ADT) continued to rally this week on the back of its late January earnings report. ADT stock looks good to rise further in multiple timeframes with well-defined areas where active investors can manage their risk around.
On Jan. 28 before the start of trading, ADT reported earnings per share of 51 cents, beating analysts’ expectations by 2 cents. Revenue for the first quarter also came in better than expected at $887 million versus the estimate of $883 million.
The company continues to see good opportunities in the greater home security services, in good part to new technology available.
ADT Stock Charts
Looking at the multi-year weekly chart of ADT stock we see that the company’s stock has only been publicly traded since October 2012. The price action since then has been fairly typical of what we often see from a new initial public offering (IPO).
After an initial multi-month rally, ADP stock topped out in March 2013 and began a 12-month selloff as the post-IPO honeymoon wore off and investors tried to come to grips with the company’s growth prospects.
By March 2014, however, a bottom had formed and the stock has been rising slowly ever since.
Click to Enlarge Importantly, a higher low was formed in mid-December and as a result of the most recent rally ADT stock has now bumped into a bigger picture diagonal resistance line, the first one since its IPO. Momentum as represented by the Relative Strength Index (RSI) also continues to rise and is nowhere near overbought readings yet.
On the daily chart, we see that after an initial rally off the March 2014 lows, ADT stock ran out of steam by August and in the bigger picture has been consolidating ever since.
The December lows in this context can now be labeled exhaustion selling, particularly if we consider the higher lows from mid-October and last month.
All three of those price points on the below chart are marked with a blue bubble and in this context the entire formation could be looked at as a bullish inverse head-and-shoulders pattern.
As a side note, I am seeing an increasing amount of those types of patterns in U.S. equities, including in some indices.
Click to EnlargeOn Jan. 28 after the earnings report, ADT stock waffled back and forth but after finding support the following day then began to rally sharply this week, which took it back to and marginally above the horizontal resistance line connecting the highs since August on a daily closing basis.
From here active investors have a constructively bullish pattern at their back that through a multi-week/month lens favors plenty further upside.
ADT stock may be somewhat overbought here in the immediate term after the recent multi-day rally, thus layering into a long position is likely a good course of action, as opposed to buying a full position size all at once.
As long as the stock remains above the $35 area it stands a good chance at releasing toward the $40 area in coming weeks/months.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
