Trading Places with Tom Bowley

How Does A SCTR Score Go From 50 To 95 In A Month? Here's The Only Company To Do It

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I ran a very simple scan, searching for companies that have been able to make the almost impossible jump in SCTR score from less than 50 to greater than 95 in just one month (22 trading days). Here's the scan I ran:

There were 2 results:

Eaton Vance (EV) doesn't count since it was announced a little over a week ago that Morgan Stanley (MS) was acquiring EV for a big premium over its then stock price. Paycom Software (PAYC) has done it all on its own. But does the HUGE jump in SCTR score justify an investment? That's a tough question. Before I look at PAYC's chart, let me say that I also ran a scan of software stocks that had seen a jump in SCTR scores from less than 70 to greater than 95 over the past 22 trading days and PAYC was the only stock returned. Then I used less than 80 and greater than 95 and Cloudflare (NET) was the only other stock. Finally, I ran a scan showing SCTR scores less than 90 22 days ago and currently above 95 and ServiceNow (NOW) appeared and joined PAYC and NET.

Here's the reason for this exercise (and it's not because I'm odd, we all already know that). I know that software has been improving once again on a relative basis, so I wanted to see how many individual software names were making similar SCTR score jumps. As it turns out, not too many. So before I even look at a chart, I'm feeling a little more bullish about PAYC and the meteoric SCTR advance. We do need to keep in mind, however, that the SCTR is simply based on a mathematical formula taking ONLY price action into account. Volume is not considered. So my "price-volume" approach to the stock market still leaves me questioning PAYC to some degree.

Now the chart:

On the surface, a move like PAYC's would have me quite bullish. But to be honest, we've seen this party twice before in the past year. The blue-dotted vertical lines highlight the huge SCTR spikes from below 50 to above 95 over one month periods. There have been 3 of them now! In each of the prior two examples, PAYC's strength disappeared almost as quickly as it arrived. Given the history, I believe there are much better options in the software space. I'd certainly keep PAYC on a Watch List, but I'd have much more confidence trading one of the software leaders. Both NET and NOW are better options, in my opinion.

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Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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