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Education & School Stocks Hanging By a Thread

|Includes: ITT Educational Services Inc. (ESI)

Finally! I went bearish on the educational/school stock group back in late February (see the article here). The idea was right, but the timing was about three months early. These stocks rebounded in late March, and only started to tumble again in early April. This tumble, however, seems to be the 'big one'.

Since my initial bearish call we've learned that (1) bad debt is a growing reality, (2) the pace of enrollment growth is slowing, and (3) these schools aren't lucrative at all for many of the smaller players. Though those are all 'invesment' type of discussions, they're also the kinds of things that prod the sellers into making the kinds of technicals/charts that jump start the big slides we were getting hints of several weeks ago.

As it stands right now, the S&P 1500 Education and School Index is on the verge of breaking under support. In fact, it already has. Since I'm using weekly charts though, I'd really like to see the index close under my support line on a Friday. And the sooner the better.... I own some ITT Tech. (NYSE:ESI) July 115 puts (ESISC) here at MHT. Take a look at the chart.

http://www.myhappytrad...

I don't think this trade is clinched yet, but it's close. Once the support line is broken, the selling should - and I stress should - accelerate for all these tickers. ESI's chart looks similar, though the stock hasn't quite tripped over the equivalent support line.  When/if it does, I'm targeting a move back to the $65-ish area where we've seen support before.

http://www.myhappytrad...

So what? I just wanted to share a little bit about my thought process and style.

I'm a 'trader' at heart, and I love to use charts. However, my time frames and activity are a little unusual (long term) for this site. That's ok - whatever works. I've just found I can make more money by being a little less active, and being picky about my trades (quality over quantity).

by Aggressively Conservative

Disclosure: ESI short