I like HLF a lot for 3 reasons, 1) it's a great example of real world Head and Shoulders' top entry points, the head fake moves associated with H&S tops that work because over a hundred years of TA has taught an H&S should look like, "X" and technical traders should enter H&S at "Y". The second reason is, despite Carl Icahn and a feud between major hedge fund managers in a spitting contest, ignoring all of the noise and talking heads, ignoring fears about who's on what side of the trade and just following the objective data and our concepts has yielded excellent gains.The third reason is the ability to ignore emotions and fears as long as you have strong objective evidence and enter trades that are otherwise very difficult emotionally to enter. Having an objective edge makes entering them a little easier, but it's still difficult, however in this case it really was the lowest risk, best entry available and without 3C's objective evidence contradicting price, I doubt many including myself would have entered the last position when we did.
Our HLF short is up nearly +21% since our most recent entry on 7/21 (an add-to) which leaves me about 25% to fill out before HLF reaches full position size.
This is the daily chart of HLF which has been the subject of Bill Ackman's relentless desire to prove they're an illegal Enron-like scheme and the stock (according to Ackman and his 300-page report followed by a live analysis session) should go to zero.
The daily chart shows a stage 3 H&S top and the 3 places I've learned over the years to look for short entries and the one place that Technical Analysis has taught for nearly a century to be the best entry, is actually the worst, but a great set up for the final area in which I'll enter a H&S top.
The 3 entries that are highest probability and lowest risk are "A" the top of the head, the only problem is you have to clearly identify the pattern as a H&S and not a random price pattern as the right shoulder is not yet formed, volume analysis is one of the only ways along with understanding the 4 stages of an asset's life-cycle. You also have to be able to wait out the real move you are looking for, but as long as you get in close to the top of the head, your stop shouldn't be challenged very often.
"B" is the top of the right shoulder, it's the second place I'll enter. This is not as good of an entry, but more timely.
"X" is where T.A. teaches technical traders to enter a H&S, on the break of the neck-line or "price confirmation", however every Wall St. firm knows traders will all react the same and enter at the same place which is why almost all H&S patterns have a shakeout back above the neckline where new shorts have placed stops upon entries on the break of the neckline, thus I never want to enter there, but be patient and wait for the shakeout move which is the 3rd and final area I'll enter a H&S top; it is the lowest level, but the most timely.
This is the shakeout of new shorts above the H&S resistance/neckline after the initial break, the big move on the upside was HLF's biggest daily move ever which was the same day Ackman made his presentation. We saw a 5 min positive divergence just before and I suspected it was Icahn trying to humiliate Ackman as the stock made it's largest daily gain ever on the day Ackman said he was delivering the "Knock-out" blow evidence against HLF. In any case, the 5 min positive only had so much gas in the tank and was not a game changer so as HLF made its move higher, we entered our add-to short near the daily highs well over +20% on the day and have reaped the rewards since.
The daily 3C chart continues to show HLF as a long term short and most of the damage was done on the short-shakeout move as you can see.
There are a few smaller divergences and a flat area in HLF, but I don't see anything that would make closing HLF worthwhile, I think this is one to just put away and let it do its thing over the next several months, I think you'll be glad you did if you aren't already at a 20+% gain with no leverage.
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