Hershey (HSY) has experienced a significant decline of 25% over the past two months, falling from a peak of $239.48 on March 1. However, the company's earnings report on April 30 revealed a strong increase in first-quarter sales and revenue, which has helped the stock begin to recover.
This situation presents an opportunity for a mean reversion strategy, although a steep sell-off does not guarantee a rebound. The analysis relies on technical indicators for entry signals. The Custom MACD (5, 13, 5) showed a bullish crossover on May 4, indicating positive momentum as the blue line moved above the yellow signal line.
The Relative Strength Index (RSI) fell below 30 on April 14, entering oversold territory, but provided a buy signal on May 5 when it rose above 30. Additionally, historical support levels indicate a strong support floor around $180, where the stock has recently found stability.
To capitalize on this recovery, a 190-195 bull call spread is proposed, targeting a modest $5 increase from current levels. The entry price is set at $2.50, limiting the risk to $250 per contract, with a potential profit of 100% if HSY closes at or above $195 by expiration. This strategy reflects a calculated approach to trading based on technical analysis rather than speculation