Thursday, January 23, 2014

HLF Herbalife Weekly Chart

Herbalife has supplied lots of drama over the last year as activist traders Icahn (long HLF) and Ackman (short HLF) trade punches. The negative divergence smack down in 2012 created the initial negativity in HLF. Price collapsed to 27, but the positive divergence appeared creating the bottom. As 2013 continued, the inverted H&S and C&H patterns were highlighted pointing to higher prices and a happy Icahn and sad Ackerman, which all occurred. Using the dark blue lines (you can experiment with other price levels for the patterns) for the inverted H&S, a head at 27 and neckline at 53 targets 79, which was achieved. Note that price never back kissed the 53 neck line which is very uncharacteristic, and price will need to come back to show respect. Herbalife is caught up in all the media hype and hedge fund big wig drama during 2013 which helped fuel the upside orgy as other funds started gunning for Ackman to squeeze him tight.

As mentioned a month or so ago, the chart was setting up in Ackman's favor moving forward, and an initial negative divergence smack down occurs (red lines). Depending on which lower red trend line you use, price has either failed and back kissed, or remains, above the trend line. The 69-70 level is strong support and can be used as an initial neckline for a potential H&S. With a head at 83 and neck line at 69, a downside target of 55-57 would be in play. Interestingly, this is in the area of the dark blue neck line of the inverted H&S that was never back tested. HLF likely has a meeting planned with the 50's price level, and perhaps 40's moving through the year. The neon blue lines highlight a sideways range of 42-68 that may develop for months forward.

The RSI printed a lower low than four months ago so the expectation is for continued weakness moving forward. Price can easily pop to 80 again, especially considering the volatility in the name, and that Icahn may Tweet at any time to try and pump his profits. As price falls, Icahn is going to have to start selling off shares and exiting the back door. That will likely drive the price strongly lower into the 50's as discussed above. HLF should only be viewed from the short side moving forward and any sharp spikes higher will likely provide attractive entry points to bring on shorts for speculative traders. Icahn was laughing last year but Ackman will laugh this year. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

Note Added 1:01 PM: News hits today that Congress may investigate HLF so it is taken to the shed out back and beaten mercilessly down -13% to 64.23 with a LOD at 62.33. The news acts as a catalyst to kick in the chart negativity as described above.

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