New Oriental Education & Technology Earns Promotion

Date:2011-09-14     Source:liminglile  Text Size:

* Top-Rated Company After working hard the past seven weeks, New Oriental Education & Technology (EDU) has earned a promotion.

Shares of China's biggest school and test-prep company are in the seventh week of a base-building effort. As it now stands, a cup appears with a 33.35 buy point.

Scrutinize this chart, and you'll find a host of positives.

First, it runs just 21% deep. Even in quiet times that's an attractive feature. But this sign of steady buyers (probably funds) ready to catch falling shares (probably from weak hands) is especially impressive, given the broad market's recent wild rides.

The base holds just one volume spike within its weekly chart, and that's on the upside. Excellent.

New Oriental Education enjoys a 95 Relative Strength Rating, while its RS line is just shy of new high ground. The stock also shows a B+ Accumulation/Distribution Rating, another sign that institutions are interested.

The chart's most attractive feature is its improvement the past few months.

This seven-week cup is a base within a base.

Look now at the cup with handle that appears from April 28 through July 18. It compares poorly with the most recent structure.

How? It's slightly deeper (25%, still modest) and shows a climax-style bottom, with heavy volume and a sharp sell-off and rebound. This is not a smooth, calm structure.

Worst of all, it failed. New Oriental took out its 30.16 buy point on July 15 in fine fashion. Volume surged, and the stock closed just shy of its high of the day — and 2% above the trigger.

The very next session, July 18, New Oriental notched a new high and reversed lower.

Even worse, the stock closed below its buy point as volume soared to almost five times its norm.

From that failure, New Oriental Education began its recent, more attractive base. That's how good stocks correct the flaws in their bad bases. They build new bases.

In this way, New Oriental Education does not add to its base count.

Still, New Oriental Education's technical picture betrays a flaw.

The stock's recent 4-for-1 split is just the sort of excessive supply addition that could hurt the stock's price. Anything more than a 2-for-1 split should raise your guard.

New Oriental offers primary and secondary programs, English and other foreign languages as well as test-preparation courses. The test setups focus on preparing students for entrance exams to U.S. and European universities.

Enrollment for the full fiscal year, which ended in May, grew 15.6% to 2.1 million students.

Does that make for a crowded campus? No. New Oriental Education's network includes 487 schools and learning centers in 47 Chinese cities. Its online network offers 1,200 courses to nearly 7 million registered users.

Parents in China, like everywhere, want better for their kids. The moms and dads are willing to sacrifice to see their children well-prepared to achieve something better than a factory job.

Earnings growth was flat in New Oriental's Q2, which ended in November. The following two quarters showed gains of 42% and 100%. Revenue in the past three quarters rose 56%, 49% and 59%.

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