Strayer Education Breaks Out

05/02/07 11:53:13 AM

by Chaitali Mohile

STRA has moved out of a flag & pennant formation. The rally will lead to a new level of $131.

Security: STRA
Position: Buy

The flag & pennant formation is a bullish formation in an uptrend. It is the continuation of the previous rally. STRA has a flag & pennant formation near its previous high $125. Stocks often fail to cross this resistance and then correct. But consolidation at this level indicates that STRA is a strong stock with a bullish strength in the rally. The advance rally from $119 to $125 is the flagpole and the long consolidation is the flag. See Figure 1.

The average directional movement index (ADX)(14) at 18 indicates a developing uptrend. The positive directional index (+DI) moved steeply over the ADX, showing increasing pressure of buyers. The breakout on heavy volume always leads to a successful rally in same direction, so +DI at 27.55 is encouraging. The relative strength index (RSI)(14) has rallied above 50 for a much longer time, confirming the stability in a bullish move. With a breakout, the RSI is trying to move above 70. Thus, the RSI shows healthy buying levels for traders during the breakout.

FIGURE 1: STRAYER, DAILY.This flag & pennant breakout will see a target of $131.

Graphic provided by: StockCharts.com.

Traders can thus go long with the target of $131. This level is calculated considering the length of a flagpole at $6 ($125 - $119). Adding $6 to the breakout level at the $125 target is seen.

FIGURE 2: STRAYER, WEEKLY. STRA has been in a broader channel in the direction of the 50-day moving average.

Graphic provided by: StockCharts.com.

STRA is moving in a broader channel in its weekly chart (Figure 2). The lower trendline of the channel offered strong support against the correction from mid-November 2006. The bullish rally from this support at $105 gave a good buying opportunity. With this upside move, the RSI (14) has also turned marginally overbought, and still has room to continue the upside move. The ADX (14) at 26 indicates a developing uptrend.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company:	Independent
Address:	C1/3 Parth Indraprasth Towers. Vastrapur
	Ahmedabad, Guj 380015
E-mail address:	chaitalimohile@yahoo.co.in
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FLAGS AND PENNANTS

Strayer Education Breaks Out

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