Shares of luxury hotels and casinos operator Wynn Resorts, Limited (NASDAQ:WYNN) rallied on Friday along with the broader market.
Two weeks ago after Wynn’s latest earnings report, WYNN stock dropped to levels last seen in early 2013, but also reached oversold readings in a band of support with lots of price memory where shares could stage a better oversold bounce.
The numbers from two weeks ago: Wynn saw revenues of $1.09 billion come up short of the $1.24 billion mark set by analysts, and a 44-cent loss came way, way under Wall Street’s projection for $1.30 per share.
If that weren’t enough, Wynn also lowered its dividend from $1.50 per share to 50 cents — that was more than investors could take, and WYNN stock swooshed lower the following day.
Judging by the post-earnings reaction in WYNN stock, an oversold bounce play looks to have a good chance of success at present, as we will see on the following two charts.
WYNN Stock Charts
First up, the multiyear weekly chart: WYNN stock in late 2014 dropped below its 2009 uptrend for the first time and has continued sliding ever since. Notably, we also see that WYNN stock exhibited a steep rally from the second half of 2013 into the first quarter of 2014. The rally ultimately got too steep and too far removed from the 2009 support line, so a steep mean reversion move lower was inevitable.
Wynn Resorts proceeded to drop 40% in the ensuing nine months as it moved back toward the 2009 support line, and after a couple of months of pausing, the stock took another leg lower, bringing 2015 year-to-date performance to -21%. A good mean-reversion move would have been toward the 2009 support line, but the extra selloff this year has brought the stock into the blue support zone that saw lots of price history in 2011 to 2013.
Downside momentum has also slowed down, all of which points toward the potential for a better oversold bounce.
On the daily chart, we see that the post-earnings gap-down of about 16% on April 29 also marked the recent lows in the stock. Since then, WYNN stock managed to bounce and work back up toward (and marginally above) the intraday highs of April 29. Thus, the April 29 selling looks like an important washout move.
We also note that the Stochastic oscillator on April 29 did not confirm the lower lower low in price, but rather failed to move to a new low, flashing marginal positive divergence that is conducive to an oversold bounce.
From here, active investors could look to buy WYNN stock at $118 or higher for a move into the $129-$130 area, which would fill the down-gap from April 29.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
