Career Education Corp. (NASDAQ: CECO, Stock Forum) is a for-profit company that owns and operates more than 80 domestic and international campuses, offering postsecondary education to approximately 90,000 students. The firm offers certificate and degree programs in areas including visual communication and design, culinary arts, information technology, business studies, and health education.
The education company's shares took a major hit on March 16, plunging more than 11% after a report surfaced that competitor Strayer Education (NASDAQ: STRA, Stock Forum) could see a drop in enrollment. Consulting firm Off Wall Street stated that statistics from the Education Department show student loan applications for new enrollments per STRA campus are declining, an early signal for enrollments. The news sent shock waves through the sector, pushing fellow for-profit educators such as Capella Education and Corinthian sharply lower.
CECO has rebounded from this knee-jerk spike in selling pressure, however, with the shares spring boarding from support near their rising 20-week moving average. This intermediate-term trendline, in conjunction with its 10-week counterpart, has helped usher CECO some 53% higher since mid-November 2008. Furthermore, the stock has rocketed more than 75% during the past 52 weeks, putting the S&P 500 Index's (SPX) loss of 41% for the same time frame to shame. Currently, CECO has reclaimed short-term support in the 22 region, as it looks to move back above former support at its 10-week moving average.
Options traders have been relatively unshaken by recent market fluctuations, maintaining a staunch preference for bullishly oriented calls. This fact is most evident in CECO's Schaeffer's put/call open interest ratio (SOIR) of 0.65, which points toward calls nearly doubling puts among options with less than three months until expiration. This ratio also ranks below 89% of all those taken during the past year.
Data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) also indicates a heavy bias for call options. Specifically, the ISE/CBOE 10-day call/put volume ratio of 2.49 reveals that calls bought to open more than double puts purchased on the exchanges during the prior two weeks. Historically, this ratio ranks in the 65th percentile of its annual range, meaning that there is potentially still more room for additional bulls on the bandwagon.
But the rampant optimism ends once we leave the options pits. Short sellers, in particular, have taken an extremely negative view of CECO, increasing their bearish positions by more than 17% during the most recent reporting period. As a result, nearly 14% of the stock's float is now sold short. With the stock displaying firm price support following the consulting firm's warning of potentially declining enrollment at Strayer, these short sellers could be in trouble. Should CECO extend its recent technical strength, we could see the weaker hands shaken out via a short-covering rally.
Finally, Wall Street analysts haven't given CECO much respect. According to Zacks, eight of the 11 brokerage firm following the shares rate them a "hold" or worse, while only three have issued "buy" ratings. Any upgrades from this bearish bunch could give CECO shares a boost, sending the shares further along their uptrend.
By Joseph Hargett