Don't Get Involved in Ego-Wars

Many of you may remember the short-lived trade in HLF as a short squeeze on December 26th of 2012 as a number of heavy hitting fund managers came out to say they were short HLF as they didn't believe in the pyramid scheme Herba-Life is known for. It sounded like a good old fashion bear raid in which mega-fund managers, Tilson, Ackman and Einhorn had all been identified as short HLF, this seemed like a good opportunity for a short squeeze and most all of you who took the trade (at least that I heard from) made money, but I thought twice about it, I didn't like these guys coming out and saying what they were doing, it's just not the way unless you're up to something, but then Carl Icahn got involved and from past analysis as well as a friend working at one of his pet projects, MOT, I wanted nothing to do with HLF either long or short, Icahn came in on the long side.

I don't look back and ask, "Was I right to stay away from or cancel the trade, it could have made some really good money?"

I ask, "Do I have an edge here that is quantifiable, that makes me giddy and one I just can't ignore?" If the answer is, "No", I don't care what the trade did, I'm not a gambler.

For those who stayed on board as the short squeeze worked and then stopped. From the 26th, the move up made 68%, then it came down 25%.

Just after hours tonight, Icahn who I believe first came in with about 5% of the company, just announced a nearly 13% stake, 12.98% to be exact. Guess what just happened to mega-short Ackman? He should wake up to something in the neighborhood of a 24% loss overnight.

Ackman might learn to keep his mouth shut now. Fidelity owns 15% of HLF, Ackman put on a 20 million share short, Fidelity as an owner of 15% would have to have allowed Ackman to borrow to fill a short that large, so one has to wonder whether the hunter became the hunted and didn't even know it? Why would Fidelity allow Ackman to borrow their shares when his intention seems to have been to join Einhorn and Tilson and possibly draw in the public in an epic, 1920's like bear raid? Fidelity would have no upside, unless they knew what was going on, they gave Ackman enough rope to hang himself (Fidelity could have pulled the shares from being borrowed), and let Ackman borrow, knowing Icahn was coming in at 13% and knowing Ackman and any others like Einhorn and Tilson (if they're all still in) would never be able to come up with the shares to cover when Fidelity and Icahn pull the borrow. The short interest is 24% of the outstanding, bottom line, this could be a career killer. It could also be one of the most brilliant ploys in which a company under direct assault figured out a way to turn the tables on the bear raiders.

This is why I prefer to stay away from urinating contests between managers with the biggest egos on the street, you never know what they'll do to win.

I mentioned earlier today I developed a new 3C, it's an extreme version that I'm still testing, but in essence requires the underlying accumulation to not just be there, but to be 50% greater than the norm, it will not pick up on subtle moves, it won't do a lot, what I'm hoping it will do is identify areas in which people like Icahn made huge moves that will effect stock prices, then use the normal 3C versions to do what we normally do. I checked HLF and guess what I came up with?

 This is the new version I'm testing and hope to run as a stand alone scan to pick up on LARGE activity.

At "A" there's distribution, remember short selling comes across the tape as selling just the same because it is, I'm guessing that's where Tilson and Einhorn got in, Ackman came in later so I'm guessing he came in around "B". I don't have the December vs January short interest, but I'm guessing there was either some shorting there too or it's even possible that Icahn himself sold just enough to send prices lower, if he can accumulate at $35 rather than $44, why wouldn't he? It's all about the end game.

At "C", I'd say it's pretty clear that's where Icahn went nuts buying, notice it's a flat area as well, that's where we always see accumulation and distribution.

Take a closer look and remember this is a 60 min chart, so these are big underlying flows and for 3C to move up, they have to be 50% greater than the average each and every tick.

During February at the lows and the range (flat area) and especially the last week, almost every single tick is to the upside, that's 50% greater meaning serious accumulation.

And that's the mechanics of putting 4 huge egos in a trade and seeing who's going to come out on top. All my best wishes to Ackman, Einhorn and anyone else who shorted HLF in quantity, it's going to be REALLY hard to find 20 million shares to cover at anything resembling a reasonable price.