Trading HLF lately has been akin to hitting the “easy button” as it continues to reverse impulsively every time it manages to rally back up that that key downtrend line on the latest Icahn pump. After the second official short trade recently hit T2 for a 19% gain just a few weeks ago (where it was advised to take some or all profits since a bounce was likely before T3 is hit), the stock did indeed bounce from there, running back to within pennies of that downtrend line, once again providing another objective short entry or add-on. Since then, the stock has plunged nearly 10% in just a few days and the primary reason for this post is to point out the fact that the stock is now at a critical technical juncture. HLF is now at dual support with prices at both the former T2 (second target) horizontal support level as well as the bottom of this triangle pattern, shown below on both the updated daily and this new 120 minute period chart. I still favor at least T3 (current final target but additional targets may be added) but we must first see this support level give way to help increase the odds of T3 being hit.
As far as an objective stop level, consider any solid break and closing candlestick on the 2-hour/120-min time frame since that would be a bullish technical event. Personally, I plan to give my position at least one daily close above that trendline as I’ve already booked enough profits from the previous trades on HLF to allow for a possible fake-out, Icahn jawboning induced move above this level, which by now is almost certainly being watched by the majority of traders. My opinion remains in the very small, almost non-existent minority that, for largely fundamental reasons and contrary to the very popular consensus on the street, that Ackman will be vindicated on his short position while Icahn’s leveraged (via options) short-squeeze attempt may backfire very badly for him. In fact, for all I know Ackman may have already exited most or all or his short position. However, regardless of my opinion on how that plays out, the top of my stop range will not be far above 45.50, even on an intraday basis. I want to reiterate that as profitable as these recent trades on HLF have played out, this remains potentially high risk trade due to the current
veiled direct threats from Carl Icahn regarding making a tender for the stock in order to force buy-ins on a large portion of the outstanding short interest in the stock. If successful, such an event could cause a very large gap in the stock, bypassing any stop-loss orders.
Trading any security has it’s risks, some larger than other but the one constant that I believe holds true in trading and investing is that risk and reward go hand in hand. The bigger the risk on a trade, the larger the potential reward. I don’t have a large enough HLF short position to do major damage if I am squeezed out of the stock but I have enough that if the stock sees the low teens or single digits, as I think is likely some time in 2013, then it will have been worth the risk that is being taken at this time.