The Rally in Paycom Software Could Be Slowing So Here's How I'd Play It

For his "Executive Decision" segment of Mad Money Wednesday night, Jim Cramer spoke with Chad Richison, founder and CEO of Paycom Software (PAYC) , the cloud-based human capital management software provider with a stock that's up over 1,600% since its 2014 IPO.

Richison explained that Paycom helps companies and employees better interact with each other in our new digital world. What was once multiple systems is now a single database that employees can manage directly. Using Paycom, HR departments can get back to the business of planning and running their business instead of processing day-to-day updates. Paycom's platform also manages performance metrics and perpetual learning initiatives, helping to ensure employees are as efficient at their job as possible.

When asked about the economy, Richison said he's not seeing any deterioration of the economy from their client base. Let's check the charts to see what investors and traders might be thinking.

In this daily bar chart of PAYC, below, we can see that prices made a small bottom in October-December of last year and then rallied smartly into July. Since July the price action has shifted a little towards consolidation.

Prices have managed to make a new high but the daily trading volume has declined and the On-Balance-Volume (OBV) line has been moving mostly sideways the past three months signaling that buyers are more neutral than aggressive.

The trend-following Moving Average Convergence Divergence (MACD) oscillator has turned up from just above the zero line for a new outright go long signal.

In this weekly bar chart of PAYC, below, we can see a very impressive rally the past three years. The rising 40-week moving average line has been a great indicator of the trend and would have kept you in a major winner.

The weekly OBV line has risen the whole time to confirm the advance.

The MACD oscillator has or is about to cross to the downside for a take profits sell signal.

In this Point and Figure chart of PAYC, below, we see no distribution (selling) and a potential upside price target of $306.

Bottom line strategy: While PAYC does show some signs of slowing, it is still pointed up and a top pattern has not developed. Investors should risk below $220 and traders or recent longs below $235. The $300-$306 area is the next potential price target.

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