Casino operator MGM Resorts International (MGM) reported third-quarter earnings last Thursday, and despite a couple of beats, MGM stock fell a little more than 6% — the stock’s largest one-day fall in more than four months.
While revenues came in 9% higher at a better-than-expected $2.46 billion, MGM earnings came to a loss of 7 cents. However, adjusted earnings of 2 cents beat the consensus for a 3-cent loss. Meanwhile, revenue in its Las Vegas casinos rose 4.9% to $1.66 billion, while its Macau, China, operations saw a 20% increase in gambling revenue, showing that the company’s growth continues to come from Macao.
The major U.S. casino stocks tend to be great trading vehicles as they react well to technical analysis, but also offer longer-term investors a decent look into the economy’s general growth prospects. Consumers can’t spend in casinos unless they have discretionary funds available, thus strength in casino stocks at the margin reflects an improving economy and consumer confidence.
On the longer-term charts, MGM stock looks attractive on many fronts. While its dropoff during the financial crisis was severe, and clearly reflected economic weakness and crashing consumer confidence, its quick bounceback — followed by a multiyear sideways trot — also showed the sluggish economic recovery.
However, as the economy earlier this year began to see a pickup in growth, so too did MGM stock begin to move higher. Eventually, in August, MGM broke past a crucial area around the $17 mark, which acted as resistance since 2009.
Over the course of the past few years, MGM had four failed tries at hurdling itself above the $17 level, but the fifth time in August proved to be a charm. From here, MGM stock could stage a classic retesting move toward the breakout area, but as a whole remains very constructively positioned on this long-term chart.
On the daily chart, with Thursday’s selloff, MGM broke below near-term horizontal support and sliced through its 50-day moving average, which hadn’t been broken through since June. More important support, however, comes in around the stock’s 100-day moving average, which also roughly coincides with a retest of the long-term (previous) resistance area.
In summary, better support is 5% to 10% lower in the near-term, but MGM stock is well positioned to move higher in the medium- and longer-term.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here. At the time of publication, Berger had no positions in the securities mentioned.
