Casino Stocks Headed Lower After MGM Earnings

MGM Resorts International (MGM) stock opened Thursday's session more than 5% lower after the company reported in-line fourth quarter revenues but missed profit estimates by three cents. A company spokesman refused to provide "quarterly specifics" when asked about Las Vegas operations during the conference call, triggering a sizable sell-the-news reaction that gave up modest gains booked right after the initial release.

The gaming giant and its rivals have come off deep lows after a tough 2018 business environment, made tougher for Macau operations by trade tensions between the U.S. and China. Local issues have taken their toll as well, with Las Vegas tourist volume dropping 0.2% last year after declining 1.7% in 2017. Heavy competition from Native American and riverboat casinos is to blame for the shortfall as well as lingering memories of the October 2017 Mandalay Bay massacre. MGM is the parent company for that casino and resort.

MGM Resorts shares posted an all-time high at $100.50 in October 2007 and turned lower into the first half of 2008. The decline accelerated during the economic collapse, dropping the stock to an all-time low at $1.81 in March 2009. It has gained ground in three buying impulses in the past decade, topping out in January 2018 just one point under the .382 Fibonacci retracement level of the 2007 into 2009 downtrend.

The decline into December 2018 landed on the 200-month exponential moving average (EMA) and a rising lows trendline going back to 2009, raising the odds for a long-term bottom. The bounce into February 2019 has reached resistance at the April 2017 failed breakout above the 2014 high at $28.75, but the monthly stochastics oscillator is still ticking higher in a buy cycle that hasn't reached the overbought level. This conflict predicts two-sided action and a range-bound tape into the foreseeable future.

Wynn Resorts, Limited (WYNN) stock ended a tumultuous 2018 last month, highlighted by the sudden departure of founder and long-time CEO Steve Wynn in reaction to #MeToo-driven sexual abuse allegations. Large Macau exposure undermined buying interest at well, dumping the stock to a two-year low in December. Accumulation took a massive hit during that period, dropping to the lowest low since January 2016.

The stock rallied after late-January earnings but has now stalled at 200-day EMA resistance, predicting a downturn that could test new support at the 50-day EMA near $115. Price action in 2019 has done little to improve bearish volume technicals, which continue to flash warning signs. A China deal could brighten the long-term outlook, but Macau tourism numbers started to decline well in advance of U.S.-China tensions.

Las Vegas Sands Corp. (LVS) results are also levered to Macau tourism numbers, along with Las Vegas Strip exposure through the Venetian and Sands resorts. The stock got beat up in 2018 as well, dropping to a two-year low, but long-term accumulation-distribution readings have held at relatively healthy levels. In turn, this indicates that the bounce that started in December could gain additional ground in the coming months. 

Price action has been stuck between the 2014 high in the upper $80s and 2016 low in the mid-$30s for the past three years. The 2018 decline crossed the .618 Fibonacci retracement of the 2016 into 2018 uptrend in October, triggering a series of volatile whipsaws across the harmonic support level, followed by a bounce into 200-day EMA resistance. This is a natural level for buyers to take profits, raising the odds for a pullback that tests 50-day EMA support near $57.

The Bottom Line

The three largest U.S. casino resorts have carved similarly bearish price patterns in the past year, but Las Vegas Sands and MGM Resorts are better positioned for higher prices in the coming months than laggard Wynn Resorts.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.