Monday, December 24, 2012

Herbalife (HLF) continues extremely steep sell-off

DEC24 1357EST. Herbalife (HLF) shares have been in the press recently, and not in a flattering way. Late last week, the front page of the FT's Companies and Markets section carried the news that Bill Ackman, the hedge fund manager, had begun a public campaign of labeling the company as a "pyramid scheme". Ackman was also reported as having a large short position in the shares. The result of all this attention: HLF is in a monstrous free fall, down from an intraday high on Wednesday, Dec 19 of $43.2 to an intraday low today, a mere four trading days later, of $24.24. That's a loss of over 43 percent.

The four-day chart of HLF, produced below, shows a pretty price channel (admittedly in a Shadenfreude sense) encapsulating all price action (except for bits of two candle tails on Friday midday). As the careful viewer might notice, an analyst armed with only Wednesday-Friday price action would be able to correctly forecast today's intraday low quite accurately.

Herbalife (HLF). Wed, Dec 19 through Mon, Dec 24. 5-minute candles.

Herbalife cannot keep falling at this rate forever. The first milestone for the bulls would be a break above the 4-day channel's upper resistance trendline, followed by a fresh intraday high on relatively strong volume. Of course, HLF might keep descending further, within a new, less-steeply sloped channel.