Gambling Stocks Too Hot to Handle

Gambling stocks got pulverized in 2008, hit by a triple whammy of bad news. For starters, top Las Vegas operations couldn't get expansion projects financed at the same time that high rollers were losing their shirts in the stock market. To make matters worse, mainstream clientele were getting laid off in droves and losing the extra cash they need to take vacations and throw their paychecks into the one-armed bandits.

A few of the Strip's biggest names, such as MGM Mirage(MGM Quote), neared bankruptcy earlier this year but have now come storming back as hope grows that the economic downturn is nearing its end. Many casino operators have doubled or tripled off bear market lows in the last two months, and that raises the question, are they still good buys, or should you wait for a pullback to get on board?

MGM Mirage (MGM) -- Daily eSignal

MGM Mirage was the poster child for the industry's huge exposure to the credit crisis. The company has reliquified in the last week, ensuring its survival but increasing risk for potential shareholders. This dichotomy can be seen clearly on the daily chart, which shows a notable selloff after the recent secondary offering.

Current positioning of price well under the 200-day moving average raises a caution flag. The recovery lifted the stock above the all-time low at $1.81 in a fantastic run that has just "normalized" performance back to levels traded in January. This is mean-reversion activity that's likely to yield a long-term trading range in the single digits or lower teens.