Ack Attack at Overhead Supply!

I wanted to update this blog post from September 17th on Herbalife.

I wrote:

Some, but not all, of the momentum leaders in the market, such as FB NFLX PCLN, have now attained prior peaks, be it anywhere from one to fourteen years ago. The concept of overhead supply should now start to assert itself.

Another name to add to the list is Herbalife. Here we have a legendary story about fellow billionaires ganging up on Bill Ackman to squeeze him into oblivion. On the weekly chart, you can see the round-trip move back to all-time highs from last year.

Overhead supply does not amount to calling a major top. But it does typically mean that sideways or down become more probable than up.

The wild card, of course, is the short squeeze factor. If Ackman capitulates and covers his position, or if the market really forces his hand with a parabolic move higher from current levels, I would expect that to be a short-term factor trumping overhead supply.

Updating the Herbalife weekly chart, below, we can see that overhead supply has initially prevailed, complete with quite a few ugly candlesticks in recent weeks with clear “topping tails” (indicating price being faded aggressively). The presumption is further downside or more sloppy sideways consolidation, given the ugly weekly candles at overhead supply.

Earnings are scheduled for October 28th.

Futures are still pointing a gap lower tomorrow, but nothing too bloody yet.

Feel free to throw me your top trading ideas for Monday in my comments section.

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