HLF, Herbalife update

HLF march 15 2014 bHLF march 15 2015 s

We made a pretty astute call on this stock quite some time ago and are going to give it another try now that it is in the limelight again. Once upon a time in the late eighties or so there was a company that was called Nulife or something like that. A good friend of mine told me I should get into it because it would make us both rich beyond our dreams. If you could only see it in your mind’s eye it would become reality,  so his thinking went*. Unmoved by his arguments I responded by explaining what a ponzi scheme was etc.etc. and quickly found out how ferocious the cult like thinking and conviction can be in these circumstances. End of friendship. So let’s look at it from an EW perspective only.

On the left, the Bigchart, the 5-waves up into the top is straightforward, arguable there is even alternation between 2 and 4, there is an extended wave 3 of 3, the whole thing fits into a channel and 0 to $85 is a real bull market. Next a correction should occur wiping out at least 62% but often a lot more. All corrections should take the form of an a-b-c (or multiples of that). Our best (educated) guess here is that we are looking at an a down, a b back up, and now a c down which seems to take on the appearance of a diagonal or wedge. Legs 2 and 4 usually touch or overlap a little bit and all legs are subdivided in threes, not fives.  Should this indeed happen then $15 is a reasonable target.

* See Bob Proctor (not Prechter), as in The Secret etc.

HLF, update

hlf jul 23 2014

When in doubt, stay out. We did after the a-b-c down in 2012 was complete. The problem was that it was near impossible to determine what degree that correction was. As it turns out it was most probable a wave 4 in a 5 wave sequence that was completed, we think, at the $84 high. That happens to be where the channel upper side runs.  The initial move down to $50 would then be wave 1, or a, of a new bear market. The problem is that that move could, repeat could, be interpreted as a completed a-b-c correction. That is then contradicted by the very clear a-b-c wave back up to nearly $70 ( yesterday’s idiotic move would be the c of that wave 2). On balance we suspect that this latest move may have a few more dollars to go but will then peter out perhaps at, say $72 or so. At that point the shorts will have covered and the whole process is ready to start all over. Short at $72 with a tight stop for a target of $25. Below is a more detailed chart, also showing an alternative A-B-C down. That would then be a flat so paradoxically the stock could rise to a higher level before the C-leg starts!

hlf july 23 2014 s

HLF, Herbalife update

hlf jul 31 2012HLF dec 21 2012

The usual the (July 31) and now charts. Not perfect but close enough. This one is under attack by the same fellow at Pershing Square that “saved” CP. What role is played by this activist hedge fund is not entirely clear as this particular stock (a member of the $7 to $75 club, see previous blog) would probable have done all this without any help. The patterns are usually fairly clear, a gradual but steep rise all on momentum, then a little battle between bulls and bears near the ultimate peak, then the peak and then collapse (Nortel did exactly this).

Last time I took their slogan of their website and put it in the blog. It is all about changing lives by pressing the right buttons, from charity to community participation, from weight loss to healthy nutrition and now also finding a job etc. etc. It is a marketers dream. They come and go all the time. The alleged sin in this case, according to Ackman, is that a very large portion of the 3.5 bln. in annual sales ends up unsold in the basements of their direct sales force. i.e. the success is not so much due to selling as it is (for the moment at least) from recruiting. If true, and the company denies everything, this is the classic formula of a Ponzi scheme. Ackman is not the first to take aim at this company, not too long ago , back in May,  David Einhorn expressed similar doubts about the company. Just to give some reassurance, this company has been around for more than 30 years and is headquartered  in that bastion of probity, the Cayman Islands.