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Apollo Group Inc. provides an education in trading the Demark Setup

|Includes: Apollo Education Group, Inc. (APOL)

Apollo Group, Inc. (NASDAQ:APOL), best known for its University of Phoenix college, is providing an example of how to trade the Demark TD Setup.  I've been following APOL for about a year, waiting for it to fall far enough below my Intrinsic Value estimate ($68.7) and give a sufficient margin of safety.  It fell below my margin-of-safety price ($48.10) the week of June 25th, and formed a TD Setup Buy in doing so (9 weeks, each weekly close lower than that 4 weeks prior).  The first inclination after a Setup is to follow through to the more well known TD-Sequential process, where you continue into a 13 period countdown, waiting to purchase until the Countdown process is completed.  But Setups can be traded on their own, and the rules for doing so - which I've posted here - indicate this is an opportune time to buy APOL.

When a Buy Setup is completed, we check the prior Sell Setup for the Support level.  If Support was not broken, and the close is in close proximity to support, then we buy the Setup.  Understand?  The chart below should help.

I purchased APOL today at $46.03.  On a day like July 15th (my purchase date) where around 9 out of 10 stocks were lower (Dow down over 2.5%, 261 points), APOL was a standout to the upside, being up almost 2% on the day.  Very unusual strength.  That's the power of these Demark momentum exhaustion techniques.  When all the sellers have sold, the stock will go up due to the new buyers - who show up even on a day when the whole market is down. 

I'm using Demark to help me gain better entries on Value stocks.  A stock has to give me a Margin of Safety (and be a predictable generator of Free Cash Flow) before I will begin tracking it for purchase.  With this I am generally a longer term investor, whereas Demark is for shorter term traders.  I plan to hold APOL until the market again recognizes it's Intrinsic Value.

Disclosure: Long APOL