Bookkeeping: Short ITT Educational (ESI)

The love affair with adult re-education is starting to get a bit out of hand - today is ITT Educational's (ESI) turn. Granted nice earnings but the chart has turned parabolic. There is not a great technical reason to short here other than "it's out of hand" - that doesn't mean it cannot get more out of hand.

• For-profit education provider ITT Educational Services Inc (ESI) posted better-than-expected quarterly results, driven by a rise in student enrollments, and also forecast a strong 2009 profit, sending its shares up 14 percent to a year-high.
• The company, which provides post-secondary degree programs, sees earnings of $6.25 to $6.45 a share, but said student persistence will remain relatively flat in 2009 compared to 2008.
• ITT Educational, which competes with DeVry Inc (DV) and Apollo Group Inc (APOL), said it did not observe any further disruption in the ability of its students to access federal or private student financing during the fourth quarter.

Here is my strategy - I am going to short a 3% stake here just at $130. A gap was created in the chart this morning - I am going to cover at $117 to make sure I get inside that gap as it fills. It could go a lot lower than that, as the 20 day moving average is down at $103 (20% lower) but good enough for me. My stop loss is set at $135. So if I'm correct, 10% gain. If I'm wrong 3.7% loss. If the market starts to take off on "hope" again I expect to be stopped out very quickly.

Apollo did the exact same thing, gap up after earnings and then filled "the gap" 2 days later, so I am using the same pattern. The danger is this stock continues to run of course since its now at a 52 week high. So this has to be a quick in and out - as you see once Apollo filled its gap it ran to new highs. That said, ESI is up 44% in two weeks so as I stated above, it's starting to get frothy around here. These charts (there are about 10 of them) look like the commodity stock charts from two weeks ago. I'd like to know with what funds these unemployed people are paying for their re-education.

I'm assuming these stocks are heavily shorted because the action in all have the same parabolic pattern to it as shorts are run over.

Short ITT Educational in fund and personal account