HLF refuted by stating that it was not an illegal pyramid scheme and plans to give a presentation in its defense on its scheduled analyst day, January 10, 2013.  The question is how much can HLF shares gain on the doubts of Ackman’s claims?  Shares of HLF may continue to rise as the company prepares to defend itself against Ackman’s acqusations.  HLF CEO, Michael Johnson, has called Ackman.s allegations “bogus”.   HLF has hired the financial advisor Moelis & Co. and the law firm Boise Schiller to help defend the company.  Taking such steps to defend the company may attract more support from investors who, as a result, have become more confident that the company is not an illegal pyramid scheme.  Many investors bet against Ackman after he announced his large short position because they believed that the large bets against HLF would act as a catalyst for a larger rebound when the stock bounced back up.  Ackman would also have to buy back shares he bet against, which could cause the stock to rise even higher.  Activist investor Robert Chapman took a 35% position in response to Ackman’s bear raid.  Chapman believes that the FTC will not take any action against HLF and, as a result, the company’s shares will not fall to critical levels.  Chapman stated, “Without the FTC taking injunctive actions against HLF, Ackman’s crusade towards ’zero’ is doomed.”  Hedge fund managers Robert Chapman of Chapman Capital and John Hempton of Bronte Capital both feel that HLF is running a legitimate business.  The support of Chapman and Hempton, along with the lack of action taken by the FTC, may cause HLF shares to continue to rise amidst the short squeeze.

Author: Tyler Sciortino

Contact for questions or inquiries at tsciortino312@aol.com

This would be a sharp contrast to last years’ 3 cent per share loss on earnings of $5.99 billion.  Reasons for the improved outlook include  aluminum’s price rebound, forecast to grow by 6.5% in 2013.  With improving numbers from China pointing to a recovery, increased infrastructure spending in the region could spur demand beyond the price forecast for the year.

While expectations are low, Alcoa supplies aluminum to the auto industry and for iPads.  I believe they will surprise us and report better than expected earnings, another indication that global growth is not slowing down.  

A better gauge will be Bank Earnings with Wells Fargo (WFC) reporting later this week and Goldman Sachs (GS) and Bank of America (BAC) reporting next week.  For the recovery to move to the next level, we need to see strong Bank earnings.  The minor pullback we saw recently is healthy and should attract new buyers to lead us new 52 week highs and 1500 in the S&P 500 Futures.

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Andrew Keene
President/Founder 
KeeneOnTheMarket.com

Paper sold 4002 AOL Feb 28 Puts for $.65 (7.6 times usual volume) when stock was trading $29.55
Paper bought 18,541 LNCO Aug 35 Puts for $3.55 (255 times usual volume) when stock was trading $37.90
Paper bought 1372 STZ Feb 32.5 Puts for $1.55 (5.0 times usual volume) when stock was trading $34.88
Paper bought 4500 FCX May 33 Calls for $3.40 when stock was trading $34.87
Paper bought 8684 TSO Feb 40 Puts for $1.60 (3.3 times usual volume) when stock was trading $40.76

Another item to note is the strong overhead resistance AAPL has. The hypotenuse of the consolidation triangle also, interestingly enough, overlays with the 50-day moving average. Testes of the upper bound now have two reasons to back down. Since the low on 11/16/12, implied volatility is up 26% across the options curve and considering the triangle is suggesting that AAPL will remain range bound, perhaps long theta with strategically placed strikes can be advised, but expiring before earnings.

The NFLX chart is also interesting. Yesterday NFLX filled the 4/23/12 gap and action so far today seems to indicate that lower prices are ahead of us. Shares are currently down 0.5% form yesterday’s close. This weak action is in line with the general market, but some extra selling pressure perhaps can be expected. Now that NFLX has filled the gap, price has traded at all the appropriate levels…this is vital for all the folks that have been shorting into this move are/have been wrong and need to cover at the least opportune time.

NFLX has been a controversial stock at best. Many eloquent arguments long or short the company can be made. The next untouched gap sits at $185 to $205, about 83% away from current levels. January 2014 options suggest that there is a 10% probability we reach the $185 level by Jan 2014 expiration. Should an epic short squeeze occur, this gap could be expected to fill too.

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to… Author salernoma@mx.lakeforest.edu