Wynn Resorts, Limited (WYNN): Beware the Bear Flag!

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Shares of Wynn Resorts, Limited (NASDAQ:WYNN) are floundering. While the rest of the market staged a rousing recovery post-Brexit, WYNN hasn’t been able to get off the mat. The serial underperformance suggests lower prices are in store.

Indeed, opportunity lurks for tactical bears here.

Last month’s swoon was sufficient in turning a pair of oft-watched moving averages lower. As revealed by the descending 20-day moving average the short-term trend of WYNN stock lies square in the paws of bears here. What’s worse, the 50-day moving average is now rolling showing deterioration across the intermediate-term trend as well.

Wynn stock
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It’s telling that last week’s rally attempt was rebuffed at the 50-day moving average. Until WYNN stock can remount this level, any and all rallies should viewed with skepticism. The choppity-chop of the past week has taken on the form of a bear flag. The ascending box has digested the Brexit plunge nicely, setting the stage for yet another drop if sellers want to press their advantage in the days ahead.

Periods of consolidation like this offer low-risk entries for spectators looking for trend continuation. Look for a break of the lower trendline of the flag in Wynn Resorts over the coming week.

The $87.25 level should do the trick.

Wynn Lose or Draw

In sizing up potential option trades, two things become apparent:

First, at $89 WYNN stock options are a touch expensive. It’s tough to buy put options and not risk 30% to 50% of the initial cost with a well placed stop. As such we’ll go with a put spread.

Second, implied volatility has begun ascending from its lows and will likely continue ramping into next month’s earnings release. A play that benefits from rising volatility makes sense.

Buy the Sep 87.50/82.50 put spread once WYNN breaks the $87.25 support level. The bear put spread will cost around $2.40 or so. As with all debit spreads your risk is limited to the initial $2.40 and will be lost if the stock sits above $87.50 at expiration.

The max reward is capped at the distance between strikes less the initial debit ($2.60 if you enter for $2.40), and will be captured if the stock can fall below $82.50 by expiration.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/wynn-stock-resorts-bear-flag/.

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