How, When and Why I jumped a ship named Herbalife – HLF

Last few days have shown why trading momo stocks can be as dangerous as rope walking  in Nepal –

Check out the charts of – DECK, NFLX, GMCR, HLF, SCSS, etc. You think that it cant get uglier then this – Oh! you are so wrong.

Decker is going below $50, GMCR is going below $20, rest are also staring at slide if not doom. These all were once the darling of Wall Street.

Anyways I have owned quite a few of them myself and fortunately, most of the times I have been on the right side, the correct side.

Herbalife was my favourite for sometime –

Amazing quarterly profits and surprises – quarter after quarter, year after year. An excellent CANSLIM, IBD50 candidate. I  bought it after Feb 21st earnings beat at $64.3. It was a beautiful break out.

Rode it till 70s and started taking profits.

  1. Market started to slow down and
  2. all other leaders started going sideways.

so I took 60-70% profit off the table.

On April 30th , it delivered another stellar earning. It beat street by almost 10% but the guidance for Q3 was just inline with consensus.

Stock started correction, but I left a buy order for HLF at $68.5 untouched. These stocks tend to bounce off 50DMA and the report wasn’t as bad as Decker’s report. The stock purchase happened at $68.4. But in morning the tide seemed to have changed.

  1. Stock breached the 50 DMA on heavy volume and
  2. It ripped through the previous support.

Both these event signaled selling by institution had begun. So I bailed out. See a screenshot of actual account trades for 5/1/2012.

Moral of the story is – Never hope and never bring emotion in trading. There is no room for oops!

 

If you plan on entering HLF, I would suggest that you wait. I think HLF might go lower if $50 is breached. This is not the first time people have had negative opinion about HLF. It seems that they really dont have any product – just a marketing company. Moreover Mr. Einhorn does not have a dubious record.

Remember stock price is a speculation of what is going to happen in future. We have plenty of examples as mentioned above such as GMCR, NFLX, DECK,etc.

Dont just blindly follow IBD50. IBD50 is primarily a stock list with fundamentally good companies that are showing good RS (relative Strength). It will just take them one issue to drop the stock from the list but by that time damage will be done to your portfolio.

Lastly if market tells you something then we need to respect it.

There are plenty of companies, which are doing good such as ALLT, TXRH, GNC, WWWW, CRUS etc. Of couse we have oldies that are ready to BO – LULU, ALXN, ULTA, TSCO, UA, URI, etc.

Good Luck!

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