Casino and gaming stocks may have bottomed out after a brutal 2018 decline, with both Macau and domestically oriented operations attracting fresh buying interest. However, straight-up price action since December is generating few low-risk entry points, warning market players to wait for more beneficial cycles before taking long-side exposure. Even so, it isn't too early to examine the sector and find plays with the most profit potential.
Domestic small caps look like better bets than blue chips at this point, but there are exceptions, with sector heavyweight and Macau operator Las Vegas Sands Corp. (LVS) completing the last stage of a potential triple bottom reversal. A selection of smaller regional casinos and betting parlors have carved surprisingly bullish patterns at the same time, raising the odds that they'll break resistance levels and post new highs some time in 2019.
Las Vegas Sands shares recovered rapidly after the 2008 economic collapse nearly drove the company into bankruptcy, lifting from an all-time low at $1.38 to a 2014 high at $88.28. The stock sold off to 2012 support in the mid-$30s in 2015 and tested that level three months later, completing a 52-point trading range that hasn't been breached in the past three years. The stock recovered slowly after the deep correction, stalling less than eight points from 2014 resistance in June 2018.
A sell-off into October paused after breaking the .618 Fibonacci retracement level of the 2016 into 2018 uptrend, yielding multiple oscillations across that inflection point into year end. The short-term pattern now looks like a triple bottom despite printing progressively lower lows, but a rally above closely aligned 50- and 200-day exponential moving average (EMA) resistance is needed to confirm a reversal that establishes a healthy price target in the $70s.
Eldorado Resorts, Inc. (ERI) owns hotels and casinos in Ohio, Louisiana, Nevada, Pennsylvania, West Virginia, Colorado, Florida, Iowa, Mississippi and Missouri. The company currently holds a $3.32 billion market capitalization. The stock broke out above 14-year resistance in the upper teens in 2014 and entered a powerful trend advance that posted an all-time high just above $50 in October 2018. Sellers then took control, triggering a steep decline that carried more than 35% in less than four weeks.
A bounce into December got sold above $45, yielding a deep retracement that tested the October low successfully at year end. The stock has now bounced within three points of the recovery high and eased into a week-long consolidation pattern, raising the odds for a rally leg that completes a double bottom reversal. In turn, that bullish action should signal the end of the correction, ahead of a critical test at the 2018 high.
Empire Resorts, Inc. (NYNY) owns and operates a New York State casino resort, simulcast facilities and the Monticello Raceway. The company currently holds a $489 million market cap. The stock struggled for years, issuing two reverse splits while bouncing off long-term support near $6.00. It dropped into that level for the first time since 2011 in October 2018 and bounced once again, rising more than 100% before stalling at 200-day EMA resistance at the end of November.
A decline into December ended after filling the Nov. 15 gap above the 50-day EMA, while the rally into January has triggered a second test at the 200-day EMA. A buying spike above $17 should attract additional buying interest, ahead of continued upside that could reach the mid-$20s. Keep in mind that this is a thinly traded issue, averaging just 15,000 shares per day, with that illiquidity translating into wide bid/ask spreads.
The Bottom Line
Casino and gaming stocks have bounced off deep lows and could be bottoming out. However, careful entry timing is needed following high percentage gains, advising caution until low-risk buying opportunities can be identified.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.