HLF Reports, Not Even Stock Buybacks Can Save It... We may ride this to zero

HLF reported after the close, as you know this is one of out core short positions, the kind I'd rather leave in place and let it just work without trying to trade around every bump, bounce, decline and range. There are strong 3C charts and strong reasons we entered HLF short and did so on the day it had its biggest 1-day gain ever, although this wasn't a counter trend trade for counter trend trade's sake, we had strong objective evidence of distribution as HLF jumped over +24% on July 22nd, TALK ABOUT AN EMOTIONALLY HARD SHORT TO TAKE ON!

In addition we were shorting a stock that Carl Icahn was an owner of as well as the Oracle of Omaha, Warren Buffet, but that didn't dissuade us from shorting it in to a 25+% 1-day gain which was entirely based on objective chart data showing massive distribution.

As of the close this is what out P/L in our HLF short looked like.

On September 23rd in HLF Trade Management it was obvious HLF was going to see a counter trend rally so I provided this Trend Channel Stop for anyone who wanted to take gains and perhaps look at re-entering at better prices.

From left to right, the negative divegrence is the 1-day 24+% gain we entered HLF short for a second time, at the lows right around September 22nd we even saw a head fake move, a classic one in fact in to a positive divegrence which has since gone negative before tonight's earnings so in the post linked above, HLF Trade Management I provided this Trend Channel stop...

This is the exact chart from the HLF Trade Management post with a stop at $46.75, personally I'd rather just let core shorts work for me and not be so busy with them unless they are the trading positions we have been in and out of recently, otherwise, if I have strong reason to believe lower prices are coming, I'm fine with just being patient.

In after hours, after missing the top and bottom line and butting guidance, HLF did this...

 Note 3C in after hours went negative just before the collapse to $49.30, putting out current short at a gain of +23.5%, but given the charts below, I'm quite sure we'll be seeing lower prices...

 HLF daily 3C chart with  # 1, 2, and 4 being the 3 places I'll short a H&S top and #3 being the one place I wont because of the volatility shakeouts that led to the move above the neckline and to #4 which is where we last shorted HLF.

So whether you stayed in or took the Trend Channel exit at $46.75, you made money and can re-enter here at better prices and ride HLF down some more and why do I think it's going lower?

Here's the longer term 3C chart (multi-day).

Note the heavy accumulation of 2009 like most assets, but also the current deep leading negative divegrence, I wouldn't be surprised if they declared bankruptcy in the next year or so irregardless of whether their a scam or not.

However what really hurt HLF that we'll be talking about more since my Friday post, Now and Then looking at the market top in 2007 vs the market right now and breadth indicators.

One of the other things that's similar now like 2007 is stock buybacks, their back at 2007 highs while insider selling is back at 2007 highs as well.

What may be the last nail for HLF is the fact that like many other companies, the only way they've been able to keep share prices somewhat healthy (they would have been worse in HLF) are buybacks, HLF spent all CASH CREATION and heavy debt to repurchase approximately $690 million in shares in Q1, almost $580 million in shares in Q2 and in Q3 as their net debt climbed to an all time high at $1,150,000,000 they were only able to buy back about a million in shares this quarter, ending the game of share buyback to buoy stock prices.

All cash creation plus a bunch of debt just to buy back shares presumably long enough to let insiders sell at a gain before the company implodes. This is not unique to HLF, this has been the theme for the last 2 years in the market, a lot of stocks are as high as they are due to leveraged debt buybacks of shares at all time highs, well as HLF shows, this is a scheme that works for a bit, but not forever, especially when you can't make your numbers in earnings anymore, who's going to lend. HY credit and its decline is tied in to this entire scheme as well, where do you think the debt to finance all of this is coming from.

So hang on, HLF looks like it's going to make us a lot more in the way of gains in the months to come. I'll put out an update for HLF as it looks to be actionable again. Congratulations to HLF shorts who either took gains at the Trend Channel stop or made some more tonight, there's certainly more to come in my view, a lot more.