Herbalife Is 'Interesting' -- and Confusing

 | Aug 10, 2017 | 11:38 AM EDT
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Herbalife (HLF) remains an "interesting" situation. Is it a short (are you listening, Mr. Ackman?) that could be going to zero or is it a company on the mend?

I have no idea whether it is a pyramid play or a legitimate business that one vocal, deep-pocketed investor has waged war on. Maybe I shouldn't get hung up on the media reports, etc., and just look at the charts and indicators.

In this daily bar chart of HLF, above, we can see prices turned weaker in July, breaking under the May and June lows as well as the now-declining 50-day moving average line. HLF declined about $11 before a short-lived bounce earlier this month.

The On-Balance-Volume (OBV) line rose from mid-March to mid-July, which was a vote of confidence in the rally from $51 to $74, but the OBV line has weakened since early July. The trend-following Moving Average Convergence Divergence (MACD) oscillator peaked in May and has declined since, falling below the zero line at the end of July for an outright sell signal.

In this weekly bar chart of HLF, above, we can see prices have moved irregularly higher from a low in early 2015. Notice that there are pullbacks along the way, but the correction in the latter part of 2016 was much deeper than the decline from the 2015 high. This observation would be interesting if volume or the OBV line confirmed things. The OBV line has risen from early 2015 and pullbacks in the line have not been as deep as the price declines. The MACD oscillator turned lower in July for a take-profits sell signal.

Strategy: The chart action may be as complicated and confusing as the business model and the accounting for HLF. In the short run, the chart is bearish and a test of the rising 200-day line is the near-term risk. A weekly close above $75 is needed to turn the chart bullish again.

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