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
, 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
, are they still good buys, or should you wait for a pullback to get on board?
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.
sold off from $176 to $14.50 and bottomed out in March. The long selloff cascaded lower in three primary waves, with two periods of relatively sideways action. This is a classic Elliott Wave pattern that predicts a bounce retracing 38% to 50% of the prior decline. In turn, this points to a rally that eventually reaches $75 to $95.
The stock has completed a bullish 100% retracement of the last selloff wave and reversed at 200-day moving average resistance. It's likely to trade lower from here in the short term and carve out a higher low before resuming its upward trajectory and fulfilling the Elliot target. This building process could take another six to 12 months.
We can head off the Strip and find a more bullish chart in
. The stock suffered through a horrendous downtrend in 2008, dropping to a 10-year low at $3 in November. It tested that level in March, punched out a well-organized double-bottom reversal and started to move higher.
Buying interest has escalated since that time. The stock pushed over the November swing high at $7.55 in mid April and has rallied well above the 200-day moving average. The uptick stalled in the low teens, with a pullback below $9 that has found willing buyers. Bullish volume supports an uptrend that carries above the rally high and into the upper teens.
Las Vegas Sands
has casino properties all over the world but is best known for its Venetian Resort. It shows a five-wave decline pattern, just like Wynn Resorts, but weaker relative performance because it has failed to test the 200-day moving average. However, it's tough to complain about the sevenfold price gain since the March low at $1.38.
Bullish volume in recent weeks paints a stronger picture than the price pattern. In addition, the log-scale channeled uptrend barely budged during last week's selloff and is showing no signs of letting up. So it makes sense for this stock to move higher in the short term and test the 200-day moving average, which is currently near $17.50.
We need to travel across the Pacific to find the best-looking chart in the gambling sector.
Melco Crown Entertainment
runs the Crown Macau Resort and other local properties. It came public in the low $20s in 2006 and entered a long downtrend that hit $2.31 in October. The stock tested that level in February and started to move higher.
The uptrend stalled at resistance near $5 in April, moved sideways for the next four weeks and then broke out on heavy volume. The rally paused at $6.40, with a pullback to support that attracted strong buying interest last week. The subsequent bounce should confirm the breakout and yield a continued uptrend into stronger resistance near $8.50. A note of caution: The company just reported earnings this morning.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
Know What You Own:
Other stocks in the gambling sector include
Penn National Gaming
Isle of Capri Casinos
At the time of publication, Farley had no positions in stocks mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product that outlines his charts and analysis. Farley has also been featured in
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
Farley appreciates your feedback;
to send him an email.
click here to sign up for Farley's premium subscription product, The Daily Swing Trade, brought to you exclusively by TheStreet.com.
TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.