by Serge Berger | December 17, 2013 8:11 am
Global nutrition company Herbalife (HLF) has made quite headlines in 2013 — pyramid scheme allegations continue to fly. And the stock’s been on a wild ride — let’s dive in and see if we can uncover a healthy trade to close out the year.
On Monday Herbalife announced that PricewaterhouseCoopers has completed its re-audit of the company’s financials dating back to 2010. The company said there were “no material changes” to any of its financial statements. In response, hedge fund manager Bill Ackman, who has been all over this company, simply reaffirmed that he considers Herbalife to be a pyramid scheme. Not to be outdone, activist investor Carl Icahn came on CNBC and said that he considers Herbalife to be undervalued with capital to spare.
So it begins again.
Monday’s news cycle sent the stock soaring 9.43% on huge volume, bringing HFL stock’s year-to-date rally to just about 130%. Monday’s rally pushed HLF stock back toward its 2013 highs from early December.
On the daily chart, after retesting the 100-day moving average in November, HLF stock was near-term exhausted when it reached to new all-time highs in early December, leading HLF stock to retest the 50-day moving average (yellow line) — which is exactly where it bounced from in a big way on Monday. Monday’s big-volume rally off a confluence zone made up of lateral support as well as the 50- and 100-day moving averages now also opens up the gates for a move of HLF stock well into the $80s, for now.
From a risk management angle, any quick reversal in coming days — and particularly a move below the aforementioned confluence support area around $67 — would need to be respected.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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