NEW YORK (
) -- A couple months back I looked at
and wondered when it might be time to think about
. The same could be said for any stock in the education sector as well.
Today, I'll take a look at the only stock in the group that seems to be showing signs of a potential bottom. That company is
, but recognize that these are the early signs and they are tentative indeed.
Strayer Education offers for-profit education programs through traditional classrooms and the Internet. It has been caught up in the selling, like other names in the sector, as a lot of bad press and some disappointing earnings have hammered these stocks.
Here's the long-term chart which shows both the damage and the tentative signs of a possible turn.
In this chart, the carnage is clearly visible. You have a stock that dropped more than half its value in less than a year. That is pretty severe. On the bright side of the picture, the potential that a long-term bottom may have been put in is a standout possibility. I say that because if you look at the chart closely you can see that the lower low registered in October 2010 has lighter volume than the plunge of August.
The comparison of the two bars shows prices pushing lower but being unable to close lower. That is positive divergence. It is not a lot to hang your hat on, but it is a positive. What is needed now is a retrace back to the August lows and the inability of prices to push lower with much lighter volume. If that happens, it will tell us that the sellers are likely done on a long-term basis.
Another slight positive is that although the trend on this time frame is bearish, it is suspect bearish, not confirmed.
Moving to the weekly chart, where most swing trades occur, the picture here isn't as positive though.
To start with, the trend is confirmed bearish. Additionally, on this time frame, a lower low was made with higher volume. Finally, there is a gap down that will likely continue to suppress any price advance if price can reach the $180 area again anytime soon. There are just too many holders of the stock who are probably waiting to escape at those levels still.
With Strayer, there is the possibility that the stock has found a price level that will hold over time. The problem is that the odds of it rising appreciably any time soon aren't great. That creates a range and from a range-trading perspective it might not be a bad trade for the next few months selling the top -- the gap down area around $180 and buying the price range between $125 and $130. Any other trade doesn't seem to make a lot of sense right now with these education stocks, in general.
Until next week, just keep trading the charts!
At the time of publication, Little had no positions in the stocks mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
, a free educational site for traders and investors. He has been featured in numerous publications and is the author of
His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.