Time to Sell Home Loan Servicing Solutions?
It has been an amazing three months for shares of Cayman Island-based Home Loan Servicing Solutions, Ltd. (NASDAQ: HLSS). In that time, the stock has launched from $13.83 in July to the current price of $19.35 - a 40 percent gain. Since posting favorable earnings on Thursday of last week, the shares have gained eight percent, hitting an all-time high of $19.39 in the process. Upgrades from Barclays (NYSE: BCS) and Citigroup (NYSE: C) quickly followed on Friday.
The question now facing investors is whether to hold on to shares or to walk away.
As the sixth-month daily chart below shows (click to enlarge), the stock is running into the top of a price channel (as well as the top of its Bollinger Band) which dates back to early August. Shares recently came under heavy selling pressure after hitting $18.64 (10/9/12), trading all the way down to $16.66 before recovering. Also, the MACD on the bottom of the chart is showing some signs of over extension.
The stock has a history of big moves down, usually happening in two to three day swings. While shares are still in a strong uptrend, a significant decline could be in the stock's future, as investors cash in on recent gains.
Both longs and shorts should keep close eye on Monday's price movement. An early pop followed by a sell off may indicate a further decline is imminent. In that case, look for a test of the lower trend line in the near future, with $16.66 being a key support level. A break below that support would signal the end of the uptrend.
Should that support level hold, however, it may serve as a good entry point for longs looking for a possible run higher.
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