On May 2, 2012, Herbalife’s (HLF) stock price closed at $51.71. At that time, we ran Edson Gould’s Speed Resistance Lines [SRL] to determine what the potential downside price would be (found here). We determined that the conservative downside target was $45.45 and the extreme downside target was $24.33.
On December 21, 2012, Herbalife (HLF) has managed to exceed our expectations by falling through the conservative downside target of $45.45 and within 11% of the extreme downside target of $24.33 by closing at $27.27. The total decline since May 2, 2012 has been –47.26%.
Now we’re ready to re-examine what the prospects are for HLF based on the updated market activity.
At the current price of $27.27, HLF has fallen below the ascending extreme downside target of $24.33. This suggests that a $24.33 handle on this stock is almost guaranteed on an intra-day basis, at minimum.
After reaching the inevitable low in the current decline, we expect HLF to increase at least +30%. If $24.33 were the low, then rising to $31.63 would not be out of the question. This would be similar to the rise of the stock price from the May 2012 low to the late July 2012 high. However, rising above the ascending $34.89 line (now at $41; ± $3-$4) could be a point where the stock price could stall and then decline dramatically. In order for us to feel that the rise in HLF is sustainable, we’d like to see the stock rise, at minimum, above the $50.14 level based on Dow’s Theory.
Aside from declining to the $24.33 price, we’re concerned that if the $21.12 price is broken to the downside then HLF might retest the 2009 low of $6-$7 range. Because the single digit numbers are so extreme, we’d opt to split the difference and say that the potential downside target below $21.12 is $14.06.
Note: Any money committed to HLF, either long or short, should be considered a speculation. This piece is a continuation of the examination of Edson Gould’s speed resistance lines as explained in prior articles (found here). This is not an endorsement to sell short at the current levels nor buy these stocks once falling below the extreme downside targets.