Skip to main content

Crash at ASPS and OCN: early warning signs

Altisource (ASPS) and Ocwen Financial (OCN) are on the rocks. 

What were the early warning signs? We'll examine the stock charts of these two mortgage finance companies to see what went wrong. First, let's provide a little background on the firms and the lead-up to this recent mess.

Here's a quick summary from Housing Wire on the how and why of this interrelated financial unraveling:

"To say that Ocwen Financial (OCN) took a beating on Wall Street Tuesday would be the understatement of the century...Ocwen's stock closed Tuesday at $7.78, a loss of more than 36% for the day. One year ago today, Ocwen’s stock was trading at $55.20.

...Ocwen was under fire for most of last year, especially from the New York Department of Financial Services, which reached a settlement with Ocwen last month for failures in its mortgage servicing practices.
As part of the settlement, the NYDFS forced Erbey to resign from his position as chairman of the board of directors of Ocwen, and each of its four related companies: Altisource Portfolio Solutions S.A. (ASPS), Altisource Residential Corporation (RESI), Altisource Asset Management Corporation (AAMC), and Home Loan Servicing Solutions, Ltd. (HLSS), over allegations into Ocwen’s servicing practices and its relationships with its affiliated companies."

Just over a year ago, Bill Erbey's mortgage finance empire was the subject of flattering profiles in the financial press. Today OCN and ASPS both closed down over 36% and RESI is one of the few REITs starting the year off in negative territory. What a difference a year makes. 

Here are the weekly charts of ASPS and OCN, shared earlier today on Twitter. I'll include some expanded charts below.



 
While the deteriorating price action on the weekly charts may now seem obvious in hindsight, let's take note of some major clues (click charts to expand).


ASPS stock price chart

OCN stock price chart

If you'll review the chart annotations, you'll see that ASPS and OCN both suffered a sharp multi-week sell-off on above average volume in early 2014. These sharp down moves resulted in breaks of ASPS and OCN's newly-formed 200 day moving averages, which could be seen in real-time on their daily charts. Later, a break below the weekly MAs would be evident in the weekly charts above.

Neither stock could successfully reclaim its previous highs and both continued to trade at new lows. OCN and ASPS continued to trade below their weekly moving averages for the remainder of 2014. You can clearly the see the pattern of lower highs and lower lows that took over. Each successive plunge to new lows came on high volume, a bearish sign indeed. Investors and institutions were saying, "get me out!".

Another late clue: as stronger stocks bottomed in October 2014 and went on to make new highs, ASPS and OCN both continued lower. Even at that late date, ASPS was trading near $50, while OCN traded above $21 through November.

A related stock, AAMC, popped up on my radar via manual daily stock scans in the summer and fall of 2014. While the price action looked bearish, I quickly scratched it as a short candidate; AAMC was a $600 stock that traded an average of just 20,000 shares a day.


AAMC stock price chart

To protect yourself from steep losses in stocks like ASPS and OCN (or any stock), remember: every big drop starts as distribution and a small decline. Watch for signs of topping or distribution and a change of trend. It's up to us to as traders and investors to manage our risk and decide beforehand where we will cut our losses.

Disclosure: I have no long or short positions in any of the stocks mentioned at this time.

Popular posts from this blog

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean ...

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4. ...

Marty Schwartz Talks Trading, Life at Amherst College

Trader and Pit Bull author, Marty Schwartz speaks at Amherst College and shares lessons on markets and life in a rare, hour-long video session (Hat Tip: Tischendorf Letter ).  You may also know Schwartz from his interview in Jack Schwager's Market Wizards , a chapter which I will revisit in a follow-up post.  For now, let's absorb some of the wisdom and life lessons he imparts to the students at Amherst. Those of us who are students of trading and life may find a few pearls in the highlights below:  Marty Schwartz begins his talk by relating some of his experiences as an Amherst student back in the 1960s (a technological "stone age" by comparison to today). He was decked early on with some pretty poor grades, but he fought to get back on track and completed his studies successfully. One recurring theme from the early portion of his talk is, "it didn't kill me so it made me stronger." . Schwartz tells students, "I'm here to tell yo...