Casino stocks are on the move. Buoyed by a robust rally in U.S. equities on Thursday, Wynn Resorts, Limited (NASDAQ:WYNN), Las Vegas Sands Corp. (NYSE:LVS) and MGM Resorts International (NYSE:MGM) all registered gains north of 2%. But it’s WYNN stock that takes the cake for three reasons:
First, it has the most relative strength of the three.- Second, yesterday’s surge carried WYNN to a new two and a half year high. The other two sit well below their recent highs.
- Third, it is ever so close to breaking out of a two-month base which presents a clean setup for trading.
Let’s investigate each in greater detail with a look at Wynn Resorts’ weekly and daily time frame.
The BIG Picture
Since bottoming in early 2016, the behavior of WYNN stock has been admirable. It certainly seems to have the base-and-break play down to a science. Breakouts from the past two multi-month consolidation periods have resulted in substantial upside follow-through. I’ve highlighted both in the accompanying chart.
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And perhaps that’s part of what should excite those looking to game the next break. If it mirrors the prior two, we’re looking at a solid amount of upside here. To project a realistic target for the week’s ahead, I suggest taking the height of the recent base and adding it to the breakout point. This tactic worked perfectly for the last two breakouts as shown in the chart.
If we add the base height ($15.50) to the top of the consolidation zone ($139.50), we arrive at a target of $155. Keep in mind we’re talking about two months worth of consolidation so don’t expect the stock to rise to $155 immediately. Consider it, instead, the bull’s-eye for trend traders looking to ride WYNN for months.
One final note before departing the larger time frame: The two-year recovery has finally carried the stock back above its 200-day moving average. Spectators steering clear of stocks below the 200-day can now come and trade WYNN at will.
The Daily Chart
What appears a clean consolidation on the weekly turns decidedly more choppy on the daily.
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WYNN has been plagued by substantial price gaps and herky-jerky action for weeks now. But check out how improved the behavior has been during the back half of August. We had a healthy up gap on heavy volume followed by two weeks of narrow trading on light volume. And then yesterday — boom! An excellent thrust with heavy volume once again.
That’s about as good as it gets.
Now Wynn Resorts sits well into bullish territory above a rising 20-day moving average. The 50-day is still slithering sideways but will turn higher soon enough. If the resistance breach goes as well as I suspect, that is.
Although the ceiling near $140 rebuffed yesterday’s breakout attempt, I suspect it’s only a matter time before buyers finally muster enough strength to clear it.
Play the Odds With WYNN Stock
If all this talk of casinos has you in the mood to play the odds, then I have just the trade for you. It carries a 75% probability of profit and can deliver a potential 21% return on investment. Sell the Oct $130/$125 bull put spread for 88 cents.
The reward is limited to the initial 88 cent credit and will be captured if WYNN sits above $130 at expiration. The max risk is capped at $4.12 and will be forfeited if the stock slips below $125 by expiration. Of course, you can always limit the damage by exiting if shares drop to the short strike of $130.
As of this writing, Tyler Craig held bullish positions in NVDA. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
