This following dates back to July 25th, 2011.  I thought I'd add it to the blog now that's it's somewhat functional, and especially since CTAS's earnings are scheduled for release later this month.
 
I thought that if Cintas (CTAS) were to announce strong earnings last week, the stock would rise, but not high enough to fill BOTH open gaps shown on chart 1.  At best, I would have expected the first gap to be filled on the way to the 78.6% retracement level, but not the second.  Sure enough, earnings were strong, and the stock surged in response.  Surprisingly, price managed not to only fill both gaps, but also to breach the previous high of $34.44 set on July 7th by only 1 penny.  Note that this name hasn’t seen such elevated price levels since the September 2008 high of $33.73.


Chart 1

CTAS is one of many “uniform indicators” used to gauge the employment situation.  Here’s an article dated 05/29/2009 for your reference:  http://www.marketwatch.com/story/uniform-indicators-show-no-employment-recovery-ctas.  As stated, the company guided lower back in May 2009, citing continuing losses on the employment front. 

 

Fast forward to July 2011.  If you look up CTAS on Yahoo! Finance, the most recent headlines clearly reflect an ebullient sentiment (a sign of an impending top?) and read as follows: 

 My technical analysis suggests that CTAS is more of a contrarian employment indicator than anything else.  Let me explain: chart 2 depicts CTAS’s price pattern on the weekly timeframe.  Back on May 28th, 2009, one day prior to CTAS’s earnings release, the stock closed at $24.61/share.  It then pulled back on the heels of the disappointing report, but eventually managed to find a bottom six weeks later on July 13th, 2009 at the intraday low of $21.30.  In hindsight, the stock was already near its lows when the company issued a warning six weeks earlier.  Since then, the stock has surged by well over than 50%, while the unemployment rate has remained largely unchanged.  Who’s buying all these uniforms? 

 

Chart 2.

In contrast to May 2009, the company is now offering an upbeat 2012 guidance, but the question to ask is whether it’s doing so when the stock is already at, or within a striking distance of, a high-probability top.  In response, the weekly chart suggests that it is.

 

The triangle shown on the weekly chart is known as an Elliott running triangle.  Here’s a link for you to gain more insight about this pattern:

 

 

On this chart, I used the same thrust measurement technique illustrated in the link referencing the elliottwave.com page.  Simply put, the thrust is equal to the width of the triangle measured from the origin of black wave b.  Clearly, price has already overshot the thrust estimate by 55 cents, not to mention the looming overhead resistance it’s currently facing in the form of the July 2006 low.

 

I’ll be closely watching the price action in CTAS ahead of the August 5th employment situation report, looking to short the stock on the first opportunity I get.  Should this forecast prove timely, would it be a referendum on CTAS itself or a telltale of hard times in the coming?

 

Trade Well,

 

Peter