G. Hudson's  Instablog

G. Hudson
Send Message
I am President of Sporting Advantage Inc. which markets a revolutionary basketball product I invented, now called the SKLZ RAPID FIRE basketball return system, and owner of Hudson and Affiliates which markets cost reduction services of my affiliates to medium size organizations with a hundred to... More
My company:
Save 15% OFF all SKLZ brand of sports training equipment
My blog:
GHudson Blog
  • Herbalife Shorts Shorted More Shares To Stop Upward Share Price Momentum 3 comments
    Aug 29, 2012 11:53 AM | about stocks: HLF

    I couldn't wait for Herbalife's (NYSE:HLF) 2nd quarter financial information to come out believing that it would be very good. After David Einhorn's continued his silence and with little other support for the short case, I thought the reporting of a good 2nd quarter would send Herbalife's shares skyrocketing.

    Herbalife did report a great 2nd quarter as per this press release after the stock market closed on July 30, 2012 which included the below information -.

    "Herbalife Ltd. Announces Record Second Quarter 2012 and Raises 2012 Earnings Guidance"

    · Second quarter volume points of 1.2 billion increased 23 percent with increases in each of its six regions compared to the prior year period.

    · Second quarter EPS of $1.10 increased 25 percent compared to the prior year period EPS.

    · Raising FY'12 EPS guidance to a range of $3.88 to $3.98.

    · Board of directors approved a $0.30 per share quarterly dividend.

    · Board of directors approved a new $1 billion share repurchase authorization.

    · Company announces a $500 million increase in its credit facility.

    I was elated with what a great quarter Herbalife had and the stock price took off from a low of $52.18 up to as high a $56.39 and then closed up at $54.89 on high volume. However as I watched on my trading platform over the next few days I was suspicious that the shorts were combating the enthusiasm created by the good 2nd quarter financial report with high volume shorting of the stock. I watched as I could see what I believed were high volume short sellers sell shares at opportune times which drove Herbalife's share price down. Over the next several days I watched the stock get pushed down to as low as $48.97 on August 10, 2012.

    Click here to view Herbalife stock chart

    The short interest report for all companies including Herbalife reports the total number of shares shorted at the middle and end of the month but usually takes up to 14 days to be posted. When I was finally able to view the short interest chart for Herbalife yesterday which included the 8/15/12 short totals, it was exactly as I thought it would be. The shorts had added 585,409 shares shorted for the period 8/1/12 through 8/15/12 and knocked down Herbalife's closing share price by $1.85-

    Settlement Date Short Interest Closing Share price
    8/15/2012 13,007,577 $53.05
    7/31/2012 12,422,168 $54.89

    Over the time period 8/1/2012 through 8/15/2012 shorts added 585,409 shorts to their positions and stopped Herbalife's share price from rising further after the enthusiasm over the record 2nd quarter earnings release ebbed. Not only did the stock, stop going up but Herbalife's share price was pushed down to as low as $48.97 on 8/10/12 before rising back up to it's 8/15/2012 closing price of $53.05.

    I have to commend the shorts for apparently using their capabilities of shorting more shares of Herbalife and taking the steam out of the excitement over the terrific 2nd quarter financial report. Since 8/15/2012, Herbalife's daily share volume has dropped while it appears that shorts are still adding to their positions as they have pushed down Herbalife's share price to even below $50 (8/28/12) for part of the day.

    There is no doubt that the shorts tactics have temporarily put a damper on some of the longs enthusiasm. These tactics have probably made a lot of the weak longs to sell off their shares. However I am sure that when the shorts can't push, and can't hold down Herbalife's share price any further, there is going to be a nice run up for those longs that have stayed the course. As shorts add to their positions to drive down and hold Herbalife's share price down, they actually add to their problems discussed in my prior article- "Herbalife Shorts' Problems Could Be Great Buying Opportunity For Longs".

    On top of the problems discussed in my prior article, share trading volume has dramatically slowed down since 8/15/2012 to well under a million shares traded per day for all but one day. The other threats that continue to grow as time passes are that people seem to understand that Einhorn, who really was the person that started all of this, probably won't ever criticize Herbalife or for that matter won't even disclose whether he has a short or long position in HLF. Also, other than questions about immaterial events that have happened in the past, such as issues with Belgium, and a payment to Barry Minkow a known felon, shorts have not come forward with any evidence of material future problems for Herbalife such as an SEC or FTC investigation or even a slow down in business.

    If an increase in short positions to over 13 million shares shorted along with share trading volume drying up isn't enough to concern the shorts, Herbalife has just started on another $1 BILLION share buyback plan. It will be interesting to see what happens when Herbalife reports an even better 3rd quarter financial report .

    Disclosure: I am long HLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Stocks: HLF
Back To G. Hudson's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (3)
Track new comments
  • rustyhoo
    , contributor
    Comments (5) | Send Message
    What is the significance of the short interest decreasing by 4% ?


    What is the significance of the drop in avg daily volume allowing 14 days for shorts to cover?


    13 Sep 2012, 08:45 AM Reply Like
  • G. Hudson
    , contributor
    Comments (303) | Send Message
    Author’s reply » I don't know if you are talking about the 14 days it sometimes takes to see the data or if you are talking about the 8/31/12 short interest which came out today but as I have stated in the past you can't always tell what currently is going on as you are always waiting on the most current short interest information.


    In looking at the 8/15/12 to 8/31/12 short interest and the price action of HLF, it's fairly obvious that a lot of weak longs have been scared out of the marketplace. However it's also good news that almost 527,000 shorts were smart enough to cover.


    As to the slow down in daily volume and the fact there has been a slight rise in share price, I would think most of the weak longs have been driven out of the marketplace, and we are at an inflection point where shorts have to decide if the chances of the share price going down are higher than going up. However this is also a sign that a lot of shorts aren't covering either and that any new longs are waiting to see what happens.


    We may see the stock hang around the $50 area for awhile unless shorts become worried about Herbalife announcing a great 3rd quarter as well as re-starting their share buyback program too. I personally think as time passes there is more of a chance that investors figure out that the short story, which is mainly based upon David Einhorn coming forward with a strong cae, is not strong enough to stop a growing cash cow like Herbalife.
    13 Sep 2012, 10:44 AM Reply Like
  • rustyhoo
    , contributor
    Comments (5) | Send Message
    14 days on the 8/31 short interest to cover. Thanks for your reply.
    13 Sep 2012, 11:13 AM Reply Like
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.