Education stocks were one of the strongest groups on Monday, leading a rebound from market weakness earlier in the day. It was interesting that the sector really took off late in the day, shooting higher for several minutes. The move appears to be attributed to a report that U.S. Education Deputy Undersecretary Robert Shireman will resign his position and return to his home state of California. Shireman has been pushing for tougher regulations that may reduce the amount of federal financial aid available to "for-profit" colleges. Despite the fact that the proposed rule changes have not been released, it appears that investors view this as a positive development. It's interesting that while this news may act as the immediate catalyst, many of these stocks had been outperforming earlier in the year and were in the midst of a pullback into support levels. The rebound on Monday may have cemented these support levels as important intermediate lows.
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Strayer Education (Nasdaq:STRA) for instance, had a sharp rally in February as it cleared important resistance near $230 per share. It continued to rally after clearing this level, but ultimately began to correct with the markets late in April. STRA has been in the process of testing the $230 level as support for a few weeks, and rebounded sharply Monday on the heels of this news. The $230 level now takes on even more importance as a support level, and is the "line in the sand" so to speak for education bulls.
Career Education Corporation (NasdaqGS:CECO) is another education stock that had been rallying sharply until falling back with the markets in late April. It had been in the process of testing a support level near $28 from a prior peak formed last December. CECO managed to trade in a wide-range bar on Monday, which engulfed the past two weeks' worth of trading. This is a key reversal and could ignite a new rally for CECO. (For related reading, see Keeping Up With Your Continuing Education.)
Universal Technical Institute I (NYSE:UTI) is an education stock that found support much sooner than its peers. In fact, it rebounded sharply from its prior breakout area over a week ago. But while UTI found support more quickly, the technical picture remains much the same. The recent lows are the key level to watch, and the Shireman news could be a catalyst for a new trend higher.
Capella Education Company (Nasdaq:CPLA) is an education stock that was at all-time highs just a few weeks ago. It suffered through a sharp pullback recently as the general markets weakened in April. The slide was aided by the market crash and ultimately CPLA rebounded sharply off the lows and stabilized rather quickly. It also benefited from the rally in education stocks on Monday and has been able to trade back above its 20- and 50-day moving averages. Surprisingly, CPLA is back to being just a few points from all-time highs and could be one of the leaders if this group follows through.
While the Shireman news may be what initially sparked the rally in the education names, part of the strength can be attributed to this group being oversold and heading into a support level. At this point, any speculation on the impact of one person on the group is merely that: speculation. The most important factor is that they each held near clear support levels and formed a strong reversal. This is a good level for intermediate traders to focus on, as it should act as a floor moving forward. If the stocks lose these levels, this will provide valuable information as well. In either case, the picture has become a little clearer for this group.
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.