Hershey (HSY) has taken a massive 25% hit in just two short months, dropping from its March 1 peak of $239.48. Fortunately, the company's April 30 earnings report provided some much-needed relief, showing a solid jump in first-quarter sales and revenue. The stock is finally starting to claw its way back, creating an ideal scenario for a mean reversion play. However, a steep sell-off does not automatically guarantee a rebound. That is exactly why I rely on strict technical analysis to provide objective entry signals, rather than risking capital on a gut feeling. To time this setup, I am focusing on three specific indicators: Custom MACD (5, 13, 5): I use this tightened MACD configuration to flag momentum shifts long before standard indicators trigger. We saw a definitive bullish crossover on May 4. Since that moment, the trajectory has remained solidly positive, with the blue line pushing clearly above the yellow signal line to confirm the strength of this new upward momentum. Relative strength index (RSI): Back on April 14, HSY saw its RSI plunge below the critical 30 threshold, officially pushing it into oversold territory. Plunging below this line is never an automatic buy signal for me. I demand proof that the stock can actually climb back out before I commit. We received that exact buy signal on May 5 when the RSI pushed back above 30, and it has maintained that upward trajectory ever since. Historical support levels: For a final layer of confirmation, I am looking at classic support and resistance zones. If you review the longer-term chart, HSY has a well-established support floor right around the $180 mark. Unsurprisingly, this is exactly where the stock found its footing and initiated the current bounce. The trade setup: HSY 190-195 bull call spread To capitalize on this recovery, I am looking at a 190/195 bull call spread. Looking at the chart, Hershey has plenty of open runway to the upside, but the beauty of this specific structure is that we only need a modest $5 push from current levels to hit our targets. I am targeting an entry at a limit price of $2.50, meaning the total capital risked is strictly capped at $250 per contract. If HSY manages to close at or above $195 by expiration, this trade will deliver a clean 100% ROI on the capital we put on the line. On a quick side note: If manually tracking these setups isn't your style,and a fully automated trading system piques your interest, check out our new auto-trading capabilities here: https://tradewithmaya.com/autotrading . Here is my exact trade setup: Buy $190 call, June 12 expiry Sell $195 call, June 12 expiry Contracts: 1 Cost: $250 Potential Profit: $250 -Nishant Pant Founder: https://tradewithmaya.com/ Author: Mean Reversion Trading Youtube,Twitter: @TheMeanTrader DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
