Strong stock on a weak day? Try Herbalife (HLF)
Discussed in this article: Herbalife ( $HLF )
Let’s look at Herbalife ( NYSE:HLF ). It was a bad day in the market for most stocks, Herbalife ( NYSE:HLF ) was not one of them. What I want to just point to, very briefly here, is a technical bounce, a technical occurrence. Look at what happened to this stock relative to the two moving averages; a brief penetration through the 50-day moving average, and then a total failure to recover it. So that’s really the top-of-the-range, bottom of the range is the 200-day moving average. So right now this stock is actually I would say in this price range.
If it starts moving higher we’re going to get into this area here where you could see more supply come and as traders who bought up here near the high anticipating a move up, strong earnings and all that, sell to get out of their positions. But these are big concerns, when you look at these big volume bars and their big wide-ranging days, that’s institutional activity. When you see institutions selling a lot you kind of have be a little more cautious, not to say high volume down days are always predictive, because we had a couple of them here and look what happened, the stock’s just continued to move.
So the way I would frame this trade actually, from a risk management standpoint, is to use this little cluster here and use that as kind of a reference for where support is. I can say this; as long as this stock stays above say $60.00 then you’re good to go. So if the stock started trading below $60.00, below this last low, I think you definitely want to be out of this stock. You definitely want to be out of the stock because it could go a lot lower.
But as long as it stays above here I think what you’re doing is trading a stock that’s in this consolidation, like I said, kind of in this range. So you may be missing out on a short-term continuation of this move, so what you do is buy a little bit of stock, use this area here again as just a reference for where support should be, but you kind of have to keep a fairly loose top on it, unless you want to risk being stopped out right as the pullback starts to find buyers here; either because of the 200-day moving average, or just because of this congestion back here.
The bottom line is, if you’re just looking at technical levels there’s not a lot of potential reward here in this stock unless it continues to go through these areas here and just keeps on moving. The way you can trade that possibility is just to use a trailing stop on your existing position, if the stock does in fact start working and moving through these levels.