That's not to say the company is above suspicion or without risk. Some very questionable statics about Herbalife can be found in information supplied by the company itself; for example, 73% of Herbalife distributors only sign on to get a discount on the product (paragraph 1, sentence 2).

Herbalife has 2.3 million distributors. I find it hard to believe that 1.67 million of them decided to invest thousands of dollars in a Herbalife distributorship because the product is so amazing that they just had to have a garage full of it. That sounds more like a decision made in resignation, when faced with the fact that they just can't sell the stuff.

But the important thing to understand is that it doesn't matter. The stock isn't the product or the company. There is a huge gap between what is questionable and what is legal. Unless and until the Federal Trade Commission opens a formal investigation, any misgivings that Ackman or anyone else has about the company are moot. If the chart is correct, Herbalife stock is probably going higher -- maybe a lot higher.

At the time of publication, Ponsi had no positions in the stocks mentioned.

Editor's Note: This article was originally published at 12:00 p.m. EST on RealMoney Pro on Nov. 25.

 
Ed Ponsi is the managing director of Barchetta Capital Management, an NFA-registered commodity trading advisory, and also provides educational services through EdPonsi.com. An experienced professional trader, Ponsi has advised a variety of hedge funds and institutional traders. Ed has appeared on CNBC more than 100 times and has been profiled in magazines such as "Technical Analysis of Stocks and Commodities" and "The Traders Journal." He is the author of Forex Patterns and Probabilities, a top-selling book on currency trading and The Ed Ponsi Forex Playbook, which was endorsed by Steve Hanke, professor of applied economics at The Johns Hopkins University. Ed's books have been published in English, Vietnamese, and simplified Chinese.

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