Where These 2 Casino Stocks Could Be Headed Next

Wynn Resorts, Limited (WYNN) and Melco Crown Entertainment Ltd (ADR) (MPEL) have both pulled back to key trendlines

Kirra Fedyszyn
Dec 29, 2016 at 11:29 AM
facebook twitter linkedin


Casino stocks Wynn Resorts, Limited (NASDAQ:WYNN) and Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) are both poised at key technical levels after pulling backs from recent peaks, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. If past is precedent, however, WYNN and MPEL could be headed in opposite directions as we head into the new year.

Starting with WYNN, the stock has put in solid performance lately, adding more than 26% year-to-date to trade at $87.39. The security has now pulled back to the 320-day moving average -- a trendline that has been providing support for the shares since May. Based on three similar pullbacks over the past three years, it looks like this could be a bullish signal for WYNN.

In the short-term, the stock has averaged a five-day return of 0.5% after a pullback to this trendline, and is positive just 33% of the time. Looking further out, however, WYNN has been positive 67% of the time in the subsequent 21-day period, with an average return of 4.2%. What's more, the security has historically been among the top performers for the month of January, averaging a gain of 3.5% over the past 10 years, and ending the month on a positive note seven times.

Options traders seem to already be betting on more gains for WYNN. The stock's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 2.66. Not only does this indicate that calls have been purchased at nearly triple the rate of puts over the past two weeks, but this ratio also sits higher than 91% of comparable readings from the past year.

Outside of the options arena, however, there's still plenty of skepticism left to unwind, which could give WYNN a boost on the charts. Short interest has been dropping in recent months, but still accounts for roughly 11% of the equity's available float. Plus, 11 out of 14 analysts rate Wynn Resorts, Limited a "hold" or worse.

The story looks quite different for sector peer MPEL. The stock has given back 2% in 2016 to trade at $15.81, and recently pulled back to its 160-day moving average. While a pullback to this level has historically resulted in a short-term pop, things look rather dismal further out. Specifically, MPEL has pulled back to this moving average twice in the past three years. And at five days after such a signal, the equity has averaged a gain of 3.9%, and was positive both times. However, 21 days after such a pullback, MPEL has never been positive, averaging a 3.9% loss.

Expectations for MPEL have been running surprisingly high, considering the stock's lackluster performance on the charts. Short interest represents less than 5% of the security's total float, even after a 17% increase in the most recent reporting period. Plus, options traders have purchased more than 37 MPEL calls for every put during the last 10 sessions on the ISE, CBOE, and PHLX -- with the resulting call/put volume ratio of 37.39 arriving in the 82nd percentile of its annual range.

Nevertheless, near-term options traders have shown an unusual preference for puts over calls, per MPEL's Schaeffer's put/call open interest ratio (SOIR) of 1.36 -- higher than 84% of the past year's readings. And among the nine brokerage firms following Melco Crown Entertainment Ltd, two-thirds rate the equity a "hold" or "strong sell."

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter