ADP's Latest Performance Review
by Houghton and Atkeson 01/20/09
Automatic Data Processing Inc. (ADP) does outsourced human resource, payroll, tax and benefits administration services for companies.
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One might think that business at ADP would be stressed by rising unemployment. Yet, the stock is only down about 3% for the year and has outperformed the broader market since last October.
Option investors are betting ADP's outperformance may end by February expiration; they have purchased 16,000 ADP Feb 32.50 Puts (ADPNZ) and almost another 5,000 ADP Feb 35 Puts (ADPNG).
Clearly, these option investors believe the steady performance of the stock is about to end. The company is scheduled to report on Feb. 3.
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Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.
Watching the Treasury's Actions
In the short-term, the government's bond auction is likely to be a key driver of stocks.
Treasury Auction Boosts Market
The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.
Credit Markets Point to Upturn
The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.
The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
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