HLF Trade Follow Up

Things are heating up in HLF where a battle of the big investors has been playing out since Bill Ackman of Pershing Square delivered a 300 page research report claiming HLF is a fraud akin to Enron and is going to zero. Shortly after Ackman and Carl Icahn got in to a screaming match on CNBC and Icahn went out and bought 17% of the outstanding shares in HLF, a notional value of $1 bn as of the March 31st filing when Icahn only added 1% to the position. Since the release of the filing, Icahn says he hasn't sold any shares, but we won't know until the next quarterly comes out (typically 45 days after the end of the quarter which gives them plenty of time to sell or add without anyone knowing). Other big investors include large Mutual funds such as Fidelity and Capital Research with 12 and 8% of outstanding respectively at a notional value of $691bn and $456 bn respectively and Soros with 5% of outstanding shares.

At 10 a.m. this morning Bill Ackman started giving a presentation that he claimed would be the "knockout" blow to HLF, proving the company is a fraud.

While I have no desire to be on the other side of the trade against Icahn, we enter positions based on objective data, not what CNBC says or even what Ackman says. To that end we entered a short position in HLF on June 9th, Trade Idea: Longer Term... HLF (Short), which despite HLF being up 64% since the end of 2012, has been in the green for us at a current gain of +7.74%, this even with HLF's 6.62% gain today and with room to add to the position. You can see the charts as to why we entered HLF in the post linked above from 6/9/2014.

I figured it's time to take a look at HLF again since we haven't had an update in a while.

 This is a volume confirmed H&S top in HLF and the 3 areas I will short a H&S top, 1) the top of the head, 2) the top of the right shoulder and 3) after a break below the neckline when new shorts chase price lower, there's almost always a shakeout that takes price above the neckline where the shorts have their stops and shakes them out, this is the last place I'll enter a short on a H&S, but never at the break of the neckline as TA teaches. Typically after the shakeout, the valid H&DS pattern moves to a new low, but there are some interesting ego games being played here.

 The daily 3C chart still looks good and you can see the negative divegrence at the top of the shakeout or point #3.

On a 60 min chart the yellow area is just below the neckline where new shorts enter, this is a trap I want to avoid and wait for the shakeout and 3C confirmation which is what we did, you can see it here as well on a 60 min chart as the shakeout complete's its task.

 The 10 min chart gives you a closer view of the area. Also HLF is pretty much in line, I don't see any large accumulation that is cause for concern. In fact if HLF makes further upside gains, since the position is already at a profit, I'd consider adding to it as long as 3C confirms.

This morning at 10 a.m. Ackman is delivering what he calls his "Knockout" blow against the company , "proving they are a fraud" akin to Enron and that the stock is going to zero. I don't really care about any of that honestly, but it seems just before Ackman could start his presentation, the activist investors sought to stick it to him with a pop higher on the day he is giving his case, making it look like the market isn't buying what Ackman is selling.

Carl Icahn can be very nasty.

On the 5 min chart there's a positive divegrence that is responsible for today's move, but the reason this doesn't concern me is it's an obvious shorter term divergence meant to send price higher and humiliate Ackman, this is not a large accumulation zone that suggests HLF is going higher so I may keep an eye on it an possibly use it to add to the position being HLF already has huge institutional sponsorship and still is having difficulty maintaining its price as we were up double digits  before today's move. I don't know how much more can really be accumulated to send price higher and whether anyone wants to take that risk in case Ackman proves HLF is a fraud.

For now I'm staying in place in HLF and looking for possible opportunities to add to the position as well as watching some intraday trade to see if Ackman jostled any institutional sponsors loose.

If you are interested in the ongoing drama in HLF, just do a search, you can find all of the timelines, the Icahn/Ackman argument that caused Icahn to take a long to try to squeeze Ackman out in a case of what looks to be pure spite. It's actually somewhat entertaining to see the battle of the egos, but the bottom line is I'm only really interested in objective evidence I can observe.