Hershey s HSY Bullish Breakout Amid Key Resistance Levels as Technical Indicators Signal Overbought Conditions

Candlestick Theory

The recent two-day rally in The Hershey Company (HSY) has formed a bullish "higher high and higher low" pattern, with the stock closing above its 50-day moving average. Key resistance levels are evident at $178.26 (recent peak) and $174.34, while support is found at $169.88 (prior trough). A potential bearish reversal signal emerges if the price fails to hold above $168.91, the 100-day moving average, which aligns with a prior consolidation zone.

Moving Average Theory

The 50-day MA ($171.45) currently sits above the 100-day ($168.50) and 200-day ($170.10) averages, suggesting a short-term bullish bias. The 50-day MA crossing above the 200-day MA in early November confirmed a golden cross, reinforcing a positive long-term trend. However, the 100-day MA acting as dynamic support at $168.91 may test the sustainability of the current rally if the price retraces.

MACD & KDJ Indicators

The MACD histogram has expanded positively, indicating growing bullish momentum, while the MACD line (1.25) remains above the signal line (0.85). The KDJ indicator shows overbought conditions, with the K-line at 82 and D-line at 78, suggesting a potential pullback. A bearish divergence in the KDJ, where the price makes a higher high but the K-line fails to do so, would signal a possible reversal.

Bollinger Bands

Volatility has expanded, with the upper band at $179.44 and lower band at $169.84. The current price ($178.26) sits near the upper band, indicating overbought conditions. A contraction in band width during the prior week (from $168 to $169) suggested a period of consolidation, now followed by a breakout. Sustained trading above the upper band may confirm a new bullish phase.

Volume-Price Relationship

Recent volume has surged, with the most recent session recording 2.24 million shares traded—a 10% increase from the prior day. This supports the validity of the price rally. However, a drop in volume during an attempted breakout above $178.26 may indicate waning conviction, necessitating caution.

Relative Strength Index (RSI)

The RSI stands at 68, approaching overbought territory. While this suggests a potential correction, the 14-day RSI (68) remains below the critical 70 threshold, indicating the uptrend may persist. A close below 50 would signal a shift in momentum, particularly if accompanied by a breakdown below the 50-day MA.

Fibonacci Retracement

Key Fibonacci levels from the recent high ($179.44) to low ($164.02) include 38.2% ($172.30) and 50% ($171.73). The current price ($178.26) is near the 78.6% retracement level, acting as a potential resistance. A breakout above this level could target the $179.44 prior peak, while a failure to hold above $172.30 may lead to a retest of the $169.88 support.

Backtest Hypothesis

The backtest strategy, which buys HSY when the KDJ indicator enters overbought territory and exits on divergence or a 5% profit target with a 2% stop-loss, aligns with the current technical setup. Historical data from 2022 to 2025 shows an 8-trade frequency with a 75% win ratio and 15.23% total ROI. The strategy’s effectiveness is supported by the current KDJ overbought condition and the absence of bearish divergence. However, the recent RSI proximity to overbought levels and the MACD’s positive momentum suggest a higher probability of the 5% target ($187.17) being reached before a correction.