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Apollo Group Plummets on Lowered Growth Outlook

APOL falls below its 320-day moving average

by 2/28/2012 3:40:51 PM
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Ahead of its fiscal second-quarter earnings report -- slated for release on Fri., March 30 -- for-profit educator Apollo Group, Inc. (APOL - 44.39) downwardly revised its outlook on enrollment growth for the current quarter. Citing a stabilizing job market, as well as increased competition, APOL now expects new enrollment growth to arrive in the flat to low-single-digit percentage range. APOL had previously forecast enrollment that would mirror last quarter's impressive double-digit growth.

As a result, options players in today's session are picking up puts over calls at a feverish pace. Roughly 22,000 puts have crossed the tape, representing 17 times their average intraday volume, compared to fewer than 7,500 call contracts that have changed hands.

However, this preference for puts was in place ahead of today's lowered outlook, as evidenced by the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 9.19. What's more, this ratio ranks higher than 92% of other such annual readings, showing that bearish bets have been scooped up over bullish at a near-annual high clip in recent weeks.

This pessimism is continued outside of the options arena, as well. Although short sellers reduced their bearish exposure by more than 37% over the last month, short interest still accounts for a healthy 6.8% of the stock's available float. It would take six days to cover these shorted shares, at APOL's average daily trading volume.

Traders are not taking too kindly to the news in today's session, with the stock down more than 12% at last check -- adding to its 4.6% year-to-date deficit. Today's post-warning plunge pushes the equity below its 320-day moving average -- a trendline not breached on a daily closing basis since Oct. 17.

Price Chart of APOL since October 2011 with 320-Day Moving Average

From a contrarian perspective, additional pessimism surrounding struggling APOL could further exacerbate its slide. In fact, the stock was hit with a price-target cut from Piper Jaffray following the announcement, possibly paving the way for a new round of skeptics to climb on board.


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