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TheStreet Open House

Put Away the Prozac, Herbalife Isn't Finished

Stocks in this article: HLFTWTRNUSAVP

NEW YORK (TheStreet) -- There are no conceivable ways a Herbalife (HLF) investor may claim Friday's selloff was unexpected absent a lack of proper due diligence or honesty. My initial reaction was, "That's pretty convenient timing, almost exactly one hour of trading left in the week".

Any remaining doubt that puppet masters were pulling strings in symphony quickly dissipated upon further reports that federal law enforcement agencies were investigating the company. Herbalife's falling price had all the telltale indications of well-connected big money punishing shares.

HLF Chart

The leak happened on a Friday afternoon when volume is typically light, but early enough to allow time to spread via Twitter (TWTR) and CNBC. Once the market was in a state of worry, concern and heightened focus, the second knock-out punch came. That was the "revelation" the Justice Department and FBI are conducting investigations.

The hard-hitting precision one-two punch was enough to cause shareholders to panic and entice short-selling day traders to jump on board for an easy kill. Herbalife's bear momentum was strong enough that Nu Skin Enterprises (NUS) and Avon Products  (AVP) moved down in sympathy, and both finished Friday's session lower.

Bill Ackman's Pershing Square's name is plastered on Herbalife's stock Twitter thread, but Friday didn't necessarily originate there. Ackman, a hedge fund manager, may have a billion-dollar motivation to want the shares to decline, but unless he is exiting -- something he probably wants to do sooner than later -- or is preparing to exit, Friday's attack doesn't help him much, outside of mark-to-market accounting for his hedge fund.

So then, who does profit from a fall on Friday? Someone who is short and wants to get out of a position, that's who. More than 25 million shares were shorted in the company as of the last report, almost three million more than the previous period two weeks before on March 14.

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