close icon

Herbalife rose, despite Ackman’s attack. Why?

If you follow the logic of cause and effect, which by the way coincides with the logic of fundamental analysis, you would expect the price of a stock to rise in case of good news for the company and to decline, when bad news are released. For the human mind, this chain of thought makes perfect sense. Then how would you explain something like this: “On July 22nd Bill Ackman, the billionaire boss of Pershing Square, delivered a three-hour presentation that he said would kill off Herbalife, a seller of nutritional shakes and foods, by showing it to be a criminal enterprise that preys on the poor. But as he spoke, Herbalife shares ticked steadily higher.” – The Economist –
In this case, it is not just a single bad sales report or something like that. It is a deliberate attack, aiming to destroy Herbalife’s reputation. But the Market ignored it and Herbalife’s stock rose, contrary to all logical expectations. “The Economist” applied the following chart to illustrate this “Herbalife paradox”.

herbalife original The chart shows the last four pieces of news, concerning Herbalife’s share price. The first three of them are said to have caused declines, while the fourth one is said to be a complete surprise. For the untrained eye there is nothing more to see on this chart. It is just an illustration of the events. On the other hand, the Elliottician’s eye sees things a little different. Below you will see the same chart, but this time with an Elliott Wave labeling. herbalife analiz As visible, the first two pieces of bad news happen to fit perfectly as waves A and C of wave 2 circled. Despite of being two heavy punches for Herbalife, those waves A and C were just parts of an A-B-C zig-zag correction. According to the Elliott Wave Principle, after every correction, the trend should resume. That is exactly what happened. Against all odds, the stock managed to recover from below 30 to above 80. Note that this rise was in five waves. Then came the third hit “Sen. Edward Markey calls for probe”, right after the end of wave 5 of (1), when there should be a corrective decline, with or without bad news, because after every impulse, a correction should follow. Now we have come to Ackman’s “death blow”, which instead of killing Herbalife, appears to have resurrected it. And while everyone else is wondering “why”, Elliott Wave analysts are not surprised at all, because after the 5-3 cycle, the trend is expected to resume in the direction of the previous five-wave sequence, regardless of any news and events. In this case – to the upside, regardless of Ackman’s attack.



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Clorox Stock Can Lose 25% if a Recession Hits in 2020

As a consumer products manufacturer Clorox is one of the so-called “defensive” companies, whose sales are generally not dependent on the state of the economy. However, this doesn’t mean Clorox stock cannot fall during a general market decline or a recession. For instance, it lost 57% in the 1999-2000 rout and over 34% during the…

Read More »

Ubiquiti Can Dive in a 50% Elliott Wave Correction

Headquartered in New York, Ubiquiti Inc. is a communication equipment manufacturer with a market cap of ~$13 billion. The stock is up 85% since its late-August low and is now trading in the vicinity of $200 a share. Understandably, such sharp and fast rallies easily attract people’s attention. Extrapolation of the past into the future…

Read More »

Disney Stock Forming a Major Elliott Wave Top

The last time we wrote about Disney stock was on April 17th. The company had just announced its own streaming service, sending the price sharply higher to over $130 a share. The interesting part was not the surge itself, but the fact that the Elliott Wave principle managed to prepare us for it a year…

Read More »

Bristol-Myers Stock Pattern Triggers a 37% Surge

Bristol-Myers Squibb and Celgene are expected to merge into a single company before the end of the year. The deal will create the fifth largest pharmaceutical company in the world with sales of approximately $42 billion in 2019. Bristol-Myers fell sharply after the deal was announced in early-January. In late-April, the stock was still in…

Read More »

Home Capital: Third Wave Lifts Stock 140% in 2019

Home Capital Group is up 17.4% in Toronto today following the company’s third quarter financial report. The mortgage lender beat analysts’ earnings expectations and delivered improvements in other areas, too. In total, HCG is up ~140% in 2019. But things didn’t look so rosy at the beginning of the year. The stock was hovering in…

Read More »

Walgreens: Did the Market Foresee that KKR Offer?

Anyone who’s been in Elliott Wave analysis long enough has noticed how often some external factor “makes the price move” in the direction the analysis had identified much earlier. We’ve seen it happening in crypto, we’ve seen in happening in stock indices. Now, it happened with Walgreens stock. Walgreens jumped on November 5th after CNBC…

Read More »

SERV Stock Gave a Warning Before Crashing 40%

The last three weeks have been tough on ServiceMaster shareholders. SERV stock was hovering around $56 a share as October went into its final third. But when the company announced its preliminary Q3 results on October 22nd, all hell broke loose. Apparently, Wall Street didn’t like what it saw, which resulted in a swift and…

Read More »

More analyses