Shares of toymaker Hasbro, Inc. (NASDAQ:HAS) have been rallying strongly of late, and as of Tuesday’s close, they’re up nearly 30% for the year-to-date. However, even though HAS stock rallied after a great earnings report in mid-April, it has been in consolidation mode ever since.
Traders and active investors right now might find an opportunity for quick momentum-continuation plays higher, but they also might soon find a good spot to lean against Hasbro to the short side.
When Hasbro reported earnings on April 18, profits of 38 cents topped estimates for 21 cents. The company continues to fire on all cylinders, as its deal with Walt Disney Co (NYSE:DIS) and the Marvel comics brands is paying big dividends.
So far in 2016, fundamental investors like Hasbro for its relatively defiant nature in weakening economic environments, and trader like that HAS keeps moving from the lower left of the chart to the upper right.
While I certainly think there’s a great underlying growth story at hand in Hasbro stock, it is the slope of the medium-term (Hasbro’s rate of change over a few months) that is getting increasingly steep and likely unsustainable at this rate.
HAS Stock Charts
In 2012, Hasbro began a sharp rally phase and that this ultimately led to an overshooting move in the summer of 2015. While the stock did see a retracement in the fourth quarter of 2015, it has since rallied strongly again. Now, HAS is back at the very upper end of the cone-shaped rally formation (the black line of resistance).
Also note that this latest rally off the December 2015 lows is coming on less upside momentum, per the MACD oscillator at the bottom of the chart. We can see that negative divergence is forming whereby price has rallied to a higher high in April, but momentum is so far marking a clear lower high.
This, combined with the steep slope of the rally, likely keeps the stock capped through the medium-term.
On the daily chart, we see that in early April, HAS stock broke out of an eight-month consolidation phase. This rally accelerated on April 18 after earnings.
The stock’s consolidation phase over the past few weeks has it forming a bull flag pattern of sorts, and this could provide traders with a chance to play the stock higher toward the $90 area for a trade.
But more tactical active investors may want to look for bearish reversals that confirm buying exhaustion and upon this either short Hasbro, buy put options or put spreads for a mean-reversion move that ultimately should see HAS back into the high $70s.
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