Stocks of "for profit" educational institution companies are taking a hit, no doubt about it! Down over 50% in a couple of months or so is not uncommon. But is it much ado about nothing? If so, there might be a great buying opportunity, especially since such companies tend to do very well in periods of high unemployment and recession.

What's going on is the release of some U.S. Department of Education test results, showing that the "better" institutions have 45% of graduates making some attempt to repay student loans, and a surprising number of others fail even to pass this threshold. We live in an era where citizens think the government "owes them" and feel no obligation to pay back government loans.

Some private colleges that make loans emanating from the private college and not from the Federal Government, demand repayment before the student can get his degree. Sounds like a plan! Why doesn't the Federal Government demand this? The illogic of it spreads further when one considers that student loans are much greater in private institutions rather than public ones, because the private ones must pay for "brick and mortar," while the public ones simply get those costs covered by property taxes.

The Federal Government does not withhold degrees for one very good reason. Let's say a bachelor's degree will cost $200,000 before it is over and done with after four years. Let's say the money to pay for this is borrowed from the Federal Government. Let's say without the degree, the student could get a job paying $45,000/year, but with the degree he could get one starting at $60,000. So for $15,000/year more, he takes on a debt burden of $200,000 with interest? Do the math! It appears the better choice would be to take the lesser paying starting salary job and forget the education! That's not the point of the Federal Government's yearning to bring education within reach of the poor and the masses.

Regardless of what you think about all this, it seems clear a recent entry into the "for-profit" education marketplace, Bridgepoint Education, is off to a splashing start and has met the Dept. of Education's threshold requirement. It's stock like others in its class has been hit, but not quite so badly.

Our article on Bridgepoint Education, Inc. (BPI) is in the Archives Section, below.

Attorneys can kill just about anything! While most brokers would love to get your account, there are some very good ones out there with some very screwball interpretations of legalities in this age of increasing regulation. It was our good fortune to hit on one that was making us a lot of money (not a Madoff Ponzi Scheme!) and our misfortune to become the victim of the broker making an irrevocable "final business decision" to close the account. We paid our bills, had good credit, were making money with him, but we fell victim to his interpretation of "FINRA" rules. "FINRA" is an "SRO," a "self regulatory organization."

Below is what the U.S. Securities & Exchange Commission had to say to us on the matter. We are perplexed by the reference to "FINRA Rule 3110" because as far as we can tell, this was a "proposed rule" that was never adopted. The proposal was to consolidate NASD Rule 3010, NYSE Rule 342, and NASD Rules 3012 and 3040. These are quite cumbersome to wade through, and one almost certainly needs a lawyer to interpret some of them. As far as we can tell, Zenith easily met all of the requirements described and then some. Anyway, here is what the SEC had to say about our successful but somewhat wacky broker friend's decision to close our account:

"SEC Rule 17a-3(17) requires that brokerage firms create, for each account with a natural person as a customer, a record that includes the following information:

• Customer name • Tax identification number (e.g., social security number) • Address • Telephone number • Date of birth • Occupation • Whether the customer is employed by a brokerage firm • Annual income • Net Worth • Account investment objectives

Rule 17a-3(a)(17) also requires that the brokerage firm periodically send this information (with the exception of the customer’s tax identification number and date of birth) to its customers so that they can verify whether the information is accurate.

The SROs also have recordkeeping requirements with which broker-dealers must comply (e.g., FINRA Rule 3110). One of the purposes of the account records requirement is to ensure the firms have a current understanding of their customers’ financial situation and investment objectives.

Also, please be aware that brokerage firms generally reserve the right to terminate their customer account agreements at any time, without prior notice and without necessarily providing a reason for terminating an account. If a broker-dealer chooses to terminate an account, the SEC cannot compel the firm to reconsider its position on the matter.

You may be interested in reviewing our brochure on escheatment: http://www.sec.gov/answers/escheat.htm. As is noted therein, all states require financial institutions, including brokerage firms, to report when personal property has been abandoned or unclaimed after a period of time specified by state law — often five years. Before a brokerage account can be considered abandoned or unclaimed, the firm must make a diligent effort to try to locate the account owner. If the firm is unable to do so, and the account has remained inactive for the period of time specified by state law, the firm must report the account to the state where the account is held. The state then claims the account through a process called "escheatment," whereby the state becomes the owner of the account."

Zenith is possibly one of the most financially well-off customers in this broker's arsenal of accounts. We are totally mystified by his decision to cut us off, and no amount of attempts to contact management seem to result in the cryptic response, "final business decision." Were it not for this "little problem," we would unhesitatingly recommend him, but due to the current situation and our desire to get "back on board" with him, and also to maintain the anonymity of our internal staff of traders, we'll just have to let the broker remain nameless for the present.

This is a daily tracking program for each of the 39 stocks on our Active List. (We may be able to update this only every few days.) For previous readers of this portion of our site we feel this is no longer an "experimental" program, but rather now has been tested and is working overall. That is why we continue to post it.

Instructions for use are as follows:

This program looks at the maximum or minimum price attained by each stock over a period stated at the top of the program. Under the column headed "Sig" (Signal) there are two arrows. The second arrow is the critical one.

Regarding the second arrow, We draw two least-square lines through either the highs or lows of the daily prices along the period indicated, and then take a fraction of the distance between those lines and the extremes (maximum, minimum prices) to determine potential entry points in the direction of the major trend but in a slight reaction to it. These are considered "best prices" for the moment. These points are indicated in the columns headed "HiEnt" and "LoExt", respectively. The intent is to get you the best price as there is a high degree of probability one of these prices closest to the most recent close will be hit again in the near future. The entire list is ordered by a factor in the "Rank" column which is the difference between the minimum price ("MnPr") and the most recent Close. The second arrow under the "Sig" column indicates if the close is within the area between the minimum price and the LoExt (low exit or short entrance), or between the maximum price and the HiEnt (high entry or long entrance.) Thus, the second arrow has been set up for a trending signal. The idea is to get the "best price" for a good-until-canceled limit order by using the "LoExt" or "HiEnt." If one thinks the market is trending, then the idea would be to take advantage of a "breakout."

For trend-following traders, the list has been ordered so that all the buy signals are at the top and all the sell signals are at the bottom.

For reaction-following traders, the signals should be reversed. Most of the time, the market is trending, but when it does react, it can quickly recover the profits being lost by trend-followers who hung in too long. Zenith's traders generally use reaction (oscillator) indicators, but only after some recent and immediate momentum is established in the direction of the trade, i.e. never trying for or at the exact top or bottom. Reacting systems are not recommended by us for the average trader (Do as we say, not as we do.)

There is a way to offset overall market influence to reduce risk, simply by diversifying, trading stocks from both ends of the list and having an equal number of shorts and longs. This will mess up "buy and hold" strategies but is useful for day traders.

Archive List

08-30-2010: Bridgepoint Education, Inc. (BPI): Dept. of Education Tests

08-25-2010: Ebix, Inc. (EBIX): 4th Fastest Growing Company in the World

08-22-2010: Eli Lilly & Co. (LLY): Channel Setting Up for a Rise

08-19-2010: Coinstar, Inc. (CSTR): Block Busting

08-15-2010: Cleco Corporation (CNL): Buffeted By Hurricanes, Oil Spill

08-09-2010: Biogen Idec Inc. (BIIB): Depends Upon Three Main Products

08-07-2010: Ares Capital Corporation (ARCC): Dividends or Interest?

08-02-2010: Henry Schein Inc. (HSIC): Making Teeth Shine

08-02-2010: Zenith Monthly Traffic Report for July

07-31-2010: Philip Morris International Inc. (PM): Safe Sin Stock

07-28-2010: Texas Instruments Inc. (TXN): Relatively Stable Semiconductor Manufacturer

07-25-2010: Darling International Inc. (DAR): Grease Into Gold

07-19-2010: Sonic Automotive Inc. (SAH): No Credit? No License? No Problem!

07-18-2010: Apartment Investment & Management Co. (AIV): Historic Boondoggle

07-15-2010: Texas Roadhouse, Inc. (TXRH): Serving Cattle Country

07-11-2010: Skyworks Solutions Inc. (SWKS): The 4G Revolution

07-09-2010: Oshkosh Corporation (OSK): Formidable Defense Contract Competitor

07-05-2010: Jarden Corporation (JAH): Earnings Depend Upon Acquisitions

07-01-2010: General Dynamics Corporation (GD): Contracts Keep Rolling In

06-27-2010: International Lease Financing Corporation (ILFC): It's About the Bonds

06-24-2010: McCormack & Co., Inc. (MKC): Dominates Spices and Seasonings

06-16-2010: Anadarko Petroleum Corp. (APC): Guilt By Association

06-12-2010: ThermoFisher Scientific Inc. (TMO): Mega-Merger

06-06-2010: Rock-Tenn Company (RKT): Many Plant Closures but Shows Continual Strength

06-03-2010: DSW Inc. (DSW): Passion for Shoes

05-28-2010: Valspar Corporation (VAL): Paint and Remodel

05-23-2010: J. Crew Group, Inc. (JCG): Switching from Catalog to Retail Stores

05-21-2010: Advanced Battery Technologies Inc. (ABAT): Needs to Improve Marketing

04-19-2010: Bath Bed and Beyond Inc. (BBBY): Executives Hold Too Many Stock Options

04-12-2010: Sanderson Farms Inc. (SAFM): It's All About Chicken

04-10-2010: KMG Chemicals, Inc. (KMGB): Overlooked by Analysts

04-02-2010: Noble Corporation (NE): Always On the Move, Literally

03-28-2010: Windstream Corporation (WIN): Negative Tangible Assets

03-23-2010: Hi-Tech Pharmacal Co., Inc. (HITK): Health Care Reform Effect

03-17-2010: Bally Technologies Inc. (BYI): Past Ties to the Mob

03-12-2010: Apple, Inc. (AAPL): Garnering Everyone's Attention

03-08-2010: Waters Corporation (WAT): Stock a Bit Disappointing

02-28-2010: Partnerre Ltd. (PRE): When Life Is Good

02-25-2010: Prosperity Bancshares Inc. (PRSP): Steady Growth

02-20-2010: Nu Skin Enterprises Inc. (NUS): Women Will Pay Anything

Zenith's Active List of 39 Stocks as of 09/04/2010

(Updated once a week, usually on Saturday)

Note: Zenith tries to pick only stocks which are shortable, but sometimes stocks appear afterward on the SEC Regulation SHO list of stocks which are not shortable, which is beyond our control.

On some stocks, Zenith may hold more than the number of shares it trades in its inventory. Thus the "short" sale of such a security would technically not be a "short" sale for us and not subject to SEC rules regarding selling securities which are not deliverable. Also, stocks pop on and off the list available for shorting on successive days, so the presence of a stock on the current SHO list doesn't mean it was there at the time it was shorted.

What are the last three entries in the Active Stocks chart list? These represent typical high-, low-, and mid-cap mutual funds to help us gage the tenor of the stock market as a whole.