For my second entry of the day (I’m exhausted) I’m lining up a trade in Career Education Corp, $CECO). Earlier I spoke about an entry I took in $AUDC and you might notice that this setup exhibits some similarities from a technical perspective. Let’s take a look:

Back in the first week of August, $CECO reported surprise earnings which was met with investor enthusiasm as noted by the gap up in price on heavy volume. Since then, the stock has slowly drifted back to the point of breakout on lighter sell volume. I checked the fundamental story quickly and it’s supported by increases in sales, EPS, as well as fund ownership. That makes me feel more secure in the trade. As I wait for sellers to exhaust themselves I zoom in to an intraday time frame and watch for a bullish momentum divergence which starts to signal that bears aren’t having as much luck pushing the stock lower, and bulls seem to be taking the reins.

This power gap higher and drift back toward support is a favorite trade of mine. You’ve seen it before…

And…

 

I own stock as of today. I will look to supplement with calls if price reverses course proving to me a buyer is beneath.

Good day.

Trent J. Smalley, CMT