This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

If Accredited Home Drops Further, Short It

With the subprime mortgage issue brought front and center by recent revelations from Bear Stearns (BSC) that two of its hedge funds are just a bit underwater on some collateralized debt obligations, or CDOs, one stock that comes to mind as the poster child for subprime mortgage problems is Accredited Home Lenders (LEND).

This stock fell from a high of above $60 to a low of $3.77 in just 10 months. But after rallying back to $15 over the past few months, the stock is once again rolling over.

So what often happens with these stocks that roll down the "Street of Broken Dreams"? They can climax in a crescendo bottom where the last of the bulls are cleaned out, and then advance on a vacuum of selling pressure.

As the stock advances, value investors start believing that they might have found a gem buried in all that mud. They'll take a chance on a distressed stock on the possibility that the company might right itself, or be acquired by a white knight.

But if the stock starts faltering at all, then the recent buyers become sellers. That's what's happening with Accredited Home Lenders.

On the weekly chart below, we see that the stock ran back to test $15. That rally ended at the middle Bollinger Band and the stock rolled over. RSI has advanced to the top of the current channel, but is also rolling over and confirming Accredited Home Lenders' reversal.

I just don't see a lot that's bullish about this chart. The recent short-interest ratio is close to six (meaning six days to cover). That's a bit high, but the truth is that sometimes the bears are right. With the stock right at $13, consider shorting it on any break below that level.

But also consider putting a protective stop at about $14.50 -- just above the current middle Bollinger Band. In light of the current environment, I'd suggest looking for a downside price target of about $8.

Accredited Home Lenders (LEND) -- Weekly

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
ARW $60.75 0.00%
GG $19.81 0.00%
MAT $26.74 0.00%
LVS $55.16 0.00%
AAPL $124.75 0.00%


DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs