A Pyramid Scheme with a Flag

With VRX reversing sharply back down this afternoon, it is worth revisiting some scenarios where the market may force Bill Ackman's hand. Of course, this is not about calling out a talented and intelligent billionaire, but rather seeking out actionable ideas based on historical market patterns.

Specifically, if Valeant continues to sell-off, an Ackman long, then perhaps the market squeezes an Ackman short, such as Herbalife. 

On the HLF daily chart, below, we have been tracking the recent progress closely for Members. Note the rising 200-day moving average now below price tightly basing in a bull flag pattern, with higher highs and higher lows since February. HLF is a heavily-shorted name, beyond Ackman too, and is capable of squeezing sharply back over $62.

The upside reversal this afternoon came on strong buy volume and coincided with the downside movement in VRX. 

Even if HLF is eventually found to be as, well, bad as Ackman believes it to be, the market still may try to force his hand a few more times first.