Death Cross Signals This Casino Operator Is an Immediate ‘Sell’
Just one month ago, shares of big casino operators were threatening to break out to the upside from their respective six-month swoons. Fast forward to this week, and they are doing anything but that.
The attempt to rally failed, and now casino stocks — and Wynn Resorts (NASDAQ: WYNN) in particular — are breaking down below support.
Based on the size and shape of the pattern formed so far this year, there looks to be a big drop coming.
After peaking in March near $ 249, WYNN reversed course and fell to a low below $ 200 by late April. From there, it settled into a sideways range, offering short-term traders some good action, but essentially going nowhere for months.
Then, in late July, fueled by better-than-expected earnings, the stock scooted higher and appeared to break free of its trading range and 50-day moving average. However, sales missed estimates, and that seemed to take a day to set in. Traders fled and the stock headed back down to support.
Unfortunately for WYNN, technical analysis suggests that failed upside breakouts often foretell coming downside breaks.
And indeed, the stock fell rather sharply below its moving averages — both the 50-day and the all-important 200-day. After a few days of low-volume recovery, WYNN failed once again, this time at its averages, and the stage was set for the larger breakdown.
Support at $ 194 was broken. There is an argument that support exists at the January and April lows near $ 190, but that seems flimsy as they were made on intraday drops and rebounds instead of daily closes.
No matter how we spin it, WYNN is in a declining trend in 2014, sports weak momentum and has broken its key averages. Further, the 50-day average has crossed below the 200-day average in a formation known as a black or death cross. As the name suggests, it is not good.
Measuring the height of the trading range and projecting it down from the break point gives us an approximate downside target of $ 160. It is confirmed by traditional horizontal support from the twin lows set last November, as well as highs set back in 2011 and arguably in 2007.
Further, the rising trendline from the 2009 low will be in that area in just a few weeks. Indeed, it is a compelling level for the bears.
Recommended Trade Setup:
– Sell WYNN short at the market price
– Set stop-loss at $ 205
– Set initial price target at $ 160 for a potential 17% gain in six weeks