Herbalife (HLF) shares have been under consolidation in a two-tiered channel pattern, and the technical indications are that the stock could be ready for a powerful breakout.
The weekly chart shows the stock making a sharp decline in 2014 and then bouncing back in the first half of 2015, to the 62% Fibonacci retracement level of the 2014 range. It has been reverting around the 50% retracement level since then and consolidating in a narrowing range. This price action has compressed the Bollinger bands to a level that often precedes volatile moves.
On the daily timeframe, the stock can be seen further consolidating in a secondary channel over the last month. The smaller channel is situated in the bottom half of the larger channel and the lower daily Bollinger band range. The flat 50-day moving average is acting as upper-end resistance, and the support line of the larger channel and the 200-day moving average are acting as lower-end support. The stochastic oscillator has been moving higher in bullish divergence to price over the last month, and the money flow index, a volume-weighted relative strength measure, is above its 21-period average and centerline.
These are early signs of positive price and money flow momentum.
Herbalife was up 2.4% on Monday, bucking the deep decline in the broader market and forming a large bullish hammer candle. It is a speculative long candidate after a break above the 50-day moving average, using a strict and tight trailing percentage stop. The strategy behind the trade is a volatility squeeze powered by a potential covering rally of the 45% short interest in the stock.