Jack Up Your Blood-Sugar, Hersh!  The Stock’s Gonna Fall! (HSY)

There’s little in the world as dependable as a candy bar to brighten your spirits – or your kid’s.  But as everyone knows, too much of the sweet stuff can lead to an early grave.

Most folks, unfortunately, don’t know when to say when.

And that’s great news for the snack industry – as it is for the alcohol, fast-food, cigarette and all other vice-based businesses.

And in our age of license and selfishness, the tendency to go overboard has led to tremendous profits for companies like Hershey (NYSE:HSY), toward which we now turn our profit-making attentions.

When M&Ms Became Montane and Mercurial

We believe Hershey’s stock is ready to melt.

With a P/E of 28.5 and a Price to Book of 19 (!), the stock is fundamentally stretched – even if it still maintains a 2.0% dividend.

Sadly, too, it’s better than ten dollars above its consensus analyst target price.

Below, is a year-to-date paste-up of the cocoa perverts’ shares, showing a better than 50% gain off the January bottom.

Have a gander –

Price went parabolic two weeks back when Goldman gave HSY a ‘neutral’ kiss, up from their former ‘sell’ rating on the stock that held through mid-July.  The price target on the stock was also pushed to $142.

But the most important element of the chart is clearly the overbought RSI read, which first presented back in late April and has been doggedly taunting shortsellers ever since (in green).  In our view, the push above RSI 80 represents the death for Hershey shares… for now.

Buy on rumor…

Given that HSY’s earnings were just announced and guidance has been offered, we’re going to recommend Hershey as a ‘sell the news’ event.

The company did beat both sales and earnings estimates, but with price currently trending almost 50% above the stock’s long term moving average (in yellow), we wouldn’t consider taking a bite out of her at this level.

On the contrary…

We’re inclined to speculate on the downside here.  The whole darn thing is a might bit sugary to us.

Take a look now at the weekly chart for an additional taste –

From last summer’s bottom at $90, the shares have risen 70%, and in so doing, also rang the weekly overbought bell (in green) – twice!

A weekly overbought RSI read, by the way, is no laughing matter – in fact, it’s a rarity – and is about as kid-friendly as a loaded gun.

That is to say, HSY stock at current levels is more than just fattening.  It could prove downright fatal.

Note especially the asymptotic nature of the latest price rise (in red).

Meat and Milk?

Let’s wind her up with a third chart – the monthly – that puts a cap on the trade and sends her drifting lazily down the Swatara Creek toward her end.

Note well one item – the overbought monthly RSI reading (in green), as good a piece of evidence as any of the insulin-spike that will shortly lead to a crash.

Here it is –

All three charts are offering overbought signals.

Call the dietician!  And the dentist, too.

Cause there ain’t no turning back.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew