Bookkeeping: Closing ITT Educational (ESI)

Submitted By Trader Mark
I am not sure what to make of the recent performance in adult education stocks if you are a proponent of "efficient market theory" (which I am not). A few months ag o I said this sector would end in flames as it became over hyped but the charts continued to support these stocks... as I wrote in the weekend summary we had pockets of strength: drugs, adult education, supermarkets - a few sectors... during the big downdraft. Now these groups have been abandoned as people move into riskier fare.

So if you believe in the "market knows all" and is "Oracle like in nature" the downdrafts of stocks like adult education and Walmart (WMT) are telling us - (a) the economy will be just fine in 6 months as jobs are created and people no longer need adult education / shopping at Walmart or (b) the consumer is so bad off that even Walmart and adult education stocks are seeing pressure. Obviously those are 2 completely different views - and just another reason why "efficient market" nonsense is just that... at least in the short to intermediate term. The more likely culprit from my cynical shoes is "hot money" is moving on to other thesis since this one is "played out" and the average market participant has the patience of a 4 year old toddler. If a stock is "not working" hot money flees.

I am closing out my ITT Educational (ESI) today, as it is now below both the 20 and 50 day moving averages. Things were ok as the stock hovered over its 50 day moving average, but then the chart took a turn for the worse last week. The stock has support at $95is (200 day moving average) and indeed could be creating a double bottom - but with so many stocks surging, I find the behavior (so weak) very curious. So counter to what I have done, a more aggressive stance would be to buy here in the $96 to $98 range and then flip it on a bounce to $110 or so. I'm trying to stick with a strategy of keeping to stronger charts on the long side and with a few exceptions that's what we own. Since I'm not a big believer in the fundamentals of this sector (this was a "join the Kool Aid" train of thought trade) I will exit with a 12% loss and see if the chart improves in the coming months.

The company reports Apr 23rd, and frankly down here the valuation is not too expensive as long as they don't disappoint.

No position

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