APOL, ESI, DV - Feb 06, 2009

charts courtesy of stockcharts.com

Usually, in every market condition, there are some groups of stocks that do a lot better than the others for an extended amount of time. For example, since the lows of November 2008, gold stocks have been doing very well.

When a group of stocks start outperforming, especially if they are advancing in hostile market conditions, they soon attract attention, first by momentum players, then by trend followers, then by pundits and subscription writers, and finally by various outlets of financial media telling us why they are doing so well. By this time usually the bulk, if not all of the advance is in.

If this is a bear market, then one strategy may be to look for strong areas of the market and see if there some stocks that may be ready to take a break. Just an investigation that may not produce anything.

One group of stocks that have done spectacularly well are the educational stocks.

A while back , mid-2008, while I was doing some performance filtering I came up with Apollo Group, and the strength of the stock in the face of all adversity attracted my attention. So much so that I did a full Objective Elliot Wave (OEW) count on the stock

This is the long term picture of APOL as I see it at this point

Impressive, isn’t it? When many other stocks were being boiled in their own fat in 2008, APOL was going up. Not a bad find for running a scan every now and then.

Here is a weekly view

It may very well be that what we are having at the moment is the 3rd major wave of a final 5th primary wave. I, however, find it less probable and think that it is more probable that the stock is still correcting a rather big Primary 4 wave, and is likely approaching the end of its major wave B. We cannot say for sure when and at what point the rise will end, and have to wait for the trend to reverse.

Still, we can look at the daily chart and see if stock is showing some signs of fatigue

Since July 2007, stock has gapped up three times. It is currently filling its 3rd gap. It’s at quite a distance from its long-term MAs, and looks a bit toppy. Given the performance of the stock so far, the fact that the mid-term trend is still up, and the fact that every now and then some pundit runs a line like how educational stocks will do well forever because they are recession-proof and deflation-proof, etc, another spike higher cannot be ruled out. Regardless, I think it is one stock that is very likely to, at least, correct a bit more. I repeat: the mid-term trend is still up, and unless I like to trade in and out on a daily, or intra-daily basis, I should be a bit patient.

Another educational stock that has been on a tear is ITT Educational Services (ESI). I have not done a full OEW count on the stock yet. Here’s a weekly picture

Almost a V-shaped rise from April 2008.

And quite a distance from its long-term MAs, as we can see from this daily chart

These have been very strong, and there is no reason they cannot stay strong. Going against such strong trends, need a lot of patience and discipline. It can be very rewarding, but it usually takes a lot of trading discipline, and a readiness to accept defeat.

When a sector or a theme becomes hot enough for financial media and pundits to catch the heat, other stocks in the group start getting some love as well.

Devry (DV), IMO, is just one such stock

Notice the recent internal weakness of DV compared to the other two. To a bull, however, it may look like a right –angle triangle base getting primed to shoot higher.

These are some situations I am following.

These are not recommendations. I do not make recommendations (read the disclaimer at the bottom of this page). You can never be sure of my ulterior motives. I may or may not update them. I may or may not change my mind.

In short, do you own analysis, be a master of your own trade!