Friday, July 9, 2010

COCO Watch

Bull signals on a bruised and bloody Corinthian Colleges Inc. (COCO), which operates more than 100 schools in the U.S. and Canada, offering degrees up to Masters.

The problem is, Corinthian is a profit-making educational institution. Sometimes, when ideology in Congress bleeds over into the markets, it can get pretty primal -- brutal rugby, not civilized soccer.
COCO $10.08

For-profit colleges have gotten a bad rap of late, with Democratic senators at a hearing bad mouthing the concept, saying the schools serves shareholders, not students. Sen. Al Franken of Minnesota even said he wants to shut them down. No joke!

Market analysts, as they are prone to do, piled on, only to happy to join the affray. And the price shows it. COCO traded at $19.31 on April 21. It hit a low of $8.62 last Tuesday. That's a pretty stunning decline.

However, for three days running COCO has shown higher highs and higher lows, and is trading 16% above that low. The parabolic sar, Person's Proprietary Signal and the macd all are in bull phase, and the fast stochastic is moving there quickly (because its fast, of course).

Volume is running around 5 million shares. That's down a bit from yesterday, but up from earlier in the week. However, an intra-day rise on June 24 (the day before the congressional nastiness) produced volume approaching 7 million. The stock isn't there yet, so the exuberance remains rational rather than runaway.

Personally, I don't understand the aversion to profit in education. We all live in a capitalist system. I would never say that it's the best of all possible systems. In many ways, it perpetrates a cruel fraud on most people.

Certainly when I remember the collapse of finance in 2007/2008, I think that it's a poorly designed system and it's developer, Adam Smith, should be fired with a black mark on his resumé.

But for now, it's the only system we have, and it's unfair, I think, to bash a company for playing by the rules.

COCO, clearly capitalist and proud, knows how to make a profit: Over the last five quarters, revenues have consistently risen, as has net income. The balance sheet shows that assets are more than double liabilities. From a business standpoint, this is a company deserving love.

Corinthian has been trading in a very broad sideways pattern since late 2004, and it's now near the bottom of that range. The topside is $20, or maybe $22 (depending upon how you look at sidewinders), so in that regard it has a lot of room to run.

Bottom line: I like it as a contrarian play, but I would be very jackrabbitty about getting out should it reverse. It's important to note that the stock is trading below the 20-day simple moving average, and a push above that level, $10.50, would be a good confirming move before entry.

Reversal Levels
  • $12.21, +21.1% (minor counter-move)
  • $10.50, +4.2% (20-day sma)
  • $10.30, +2.2%
  • $10.08 <== You are here.
  • $9.24, -8.3%
  • $8.62, -14.5%

The Great Reflation: How Investors Can Profit From the New World of Money
OK. The credit bubble burst. Housing, burst. Shockwaves reverberated. Markets collapsed. What lies ahead as we reemerge from the wreckage.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
  • psar - Parabolic Stop and Reverse
  • adx - Average Directional Index
  • pps - Person's Proprietary Signal
  • ma20 - 20-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
  • adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
  • psar, pps, macd: green for bull mode, red for bear
  • sto: green for overbought, red for oversold, yellow for the neutral zone.

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