One school of thought is Herbalife could simply have experienced a "dead cat bounce" and is on its way back lower. The other thought is that investors are brushing off Ackman's claims -- maybe he is becoming a fade.
Ackman also recently became a major shareholder in JC Penny (JCP). Like many, when I read that I was enthusiastic to see positive changes in the company. Unfortunately for JCP investors, the stock closed much lower at the end of 2012 than at the end of 2011.
Considering the size of Ackman's position, it's fair to assume shares will fall further if Ackman liquidates his position anytime soon.
By the same note, it's fair to assume that shares in Herbalife will increase if Ackman has covered his position in whole or in part.
ConclusionI don't believe the 15% rise in price in the last few days is a dead cat bounce, but I also would not chase this one higher. There is no need to chase, and if you are comfortable with options, look at selling puts and or covered calls as a method to enter. By selling high-volatility options, you allow some wiggle room to get in correctly. I banked some gains near the open on Wednesday, and will use further price softness to initiate increased bullish positions. I expect continued upside moving into the company's analyst conference coming up in about a week. At the time of publication, the author was long HLF. Follow @RobertWeinstein This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV