The recent news in the private prison business looks to have the same result on all the players in this field, but if you look more closely, and objectively, there is a big difference about one company in particular. Corrections Corp. of America (CXW) , according to the empirical evidence in the monthly bar chart below, has manifested an overbought/sell/reversal signal that suggests it will not survive the coming shakeout in the industry.
Our decision support engine (DSE) is an analysis protocol that scans thousands of chart patterns, technical indicator extremes, sentiment indicator extremes and cause/effect pattern recognition structures to come up with probability rankings of future price behavior. In CXW's case, the "if" shows overbought extremes that historically result in significant percentage declines in prices.
First, let's consider the warning has just been triggered by these monthly stochastics, which just made lower highs than that of 2015, which was a lower high than that of 2013. This series of lower highs hints of waning momentum and weakening underlying structure support. Combined with the higher high that price made in 2015 vs. 2013, an ominous condition is now in place; a bearish divergence sell signal (illustrated with bold blue lines pointing up in price pane and down in stochastics pane). The stock price action of this month is exactly the kind of "surprise" that our DSE often warns about once this condition is in place.
Second, as the labels indicate, the crash into the 2000 low was the first, but not the last selling panic. Confidence is high regarding this conclusion, as there is only a corrective structure from that low to the high in early 2015. Therefore, 2000's low is labeled as (A), 2015's high is labeled as (B), and the forecast is for wave (C) to at least double tap the 2009 low near $6, with growing odds of complete financial failure, and a stock price that approached zero. With price currently in an oversold bounce back into the pink sell zone, our DSE strongly warns to cash in your "get out of jail free" card and exit "long and wrong" exposure before the Aug. 18 low of $13 is broken. Otherwise, most investors won't have the objectivity to exit a sinking ship before it capsizes.
The plunge of Aug. 18 reached such a panic that the lower five standard deviation band was actually tested; a statistical anomaly so rare that it's impossible to be maintained for more than a few hours. While the current bounce might attract bargain hunters, it should be considered the "dead cat" variety, and sold into as the pink box suggests (into 22 +/-4).
The conditions discussed herein represent one of those opportunities to make a hard decision before the decision is made for you. Use it to get out of jail, or in this case prison, before the exit gate slams shut.