It is hard to justify the moves that Penn National Gaming (NASDAQ:PENN) stock makes. From the depth of the pandemic low to the highs of 2021 it rallied 3,480%. Sadly for those who chased it late, it has given back 63% of it. Today we will try to make sense of this action to find appropriate entry levels for new investors. We will also address current holders of PENN stock.
But first we must rewind a bit further back to see if it’s a habit or just the pandemic thing.
The 2018 price action was also relatively violent. The stock corrected more than 50% into the Christmas 2018 crash. Therefore, it is safe to assume that PENN stock moves fast in both directions almost always.
This makes it more important than normal for investors to be choosy with their actions.
PENN Stock Price Levels Are Clear
In May 2020 I wrote about the upside opportunity. But in October I suggested waiting for better opportunities near $50 per share. Most recently in October I expressed my concerns again about the PENN stock price. Penn is now 28% lower and near levels I noted then that would make more sense. All scenarios played out perfectly, so trading proper levels with a bit of patience is right.
I understand how long-term investors prefer to not seek perfect entries. However, between that and chasing at $130 per share lies a happy medium. Smart money looks before it leaps into an opportunity regardless of its thesis. Just because I found a great stock doesn’t mean I should blindly jump in.
Recently, Penn National stock could have triggered a bearish pattern once it lost $60 per share. This creates two problems for investors in the short term. If that’s the case, then there could be more downside before it hits the target. They don’t always go there, but I need to know that it’s a possibility.
Luckily support gets strong into $40 per share. This was an important contention level that triggered a summer of 2020 250% rally.
The second problem that the bulls now have is the overhead resistance. Once a bearish pattern triggers, its neckline above becomes an area for selling it. Therefore, the bulls will have to work hard to overcome the levels of contentions on the way back up. This is the kind of stock where they can actually do it, still it is going to be a chore.
A Solid Foundation
Fundamentally, the disruptions from the pandemic lockdowns made it impossible to gauge value. The financial metrics do not really represent the health of the business. Nevertheless, the trailing 12 months revenue levels are at par with 2019. This is encouraging news, especially that they are in a positive net income situation.
Statistically it still looks attractive, which is a tall order. Credit goes to the management team for navigating truly unique circumstances this well.
I am a fundamental trader who relies heavily on technical analysis. In addition, I prefer to keep things simple and let the levels guide my trading. The stock is struggling to support, especially after Fridays shakedown.
Headline Risk with PENN Stock
Headline risk could extend the selling for another 10%. While that is not my scenario, investors should not be comfortable taking big positions all at once.
In the long run, I’m confident of the upside potential from PENN stock. However, in the short term and for the next few weeks, there are many headline threats to the price action. Vaccine efficacy comments overnight from Moderna (NASDAQ:MRNA) CEO caused a 1.3% drop in the S&P 500.
Unless we actually close the world again, PENN business should continue recovering. These headline disruptions are impactful on the stock price in the meantime. Smart money should stay cautious until we learn more about the recent virus mutations. Just so there is no confusion, if there are no lockdowns then this is a buying opportunity.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.