COVID-19 Surge Undermines Casino Stock Recovery

The surge in COVID-19 cases in the Southwestern states is forcing Las Vegas to rethink customer responsibilities just two weeks after reopening to the public. According to sources, the "vast majority of patrons" are not wearing masks, risking a second wave that forces casinos to shut down once again. Gamblers at gaming tables will now be required to wear masks, although the casinos didn't mandate face coverings for slot machines, which have barriers between seats.

The State of Nevada just posted its highest one-day positive case count since the crisis began, tracking disturbing trends in Arizona and California. The upticks have occurred despite relatively empty gambling rooms, raising fears of the potential impact on the local citizenry if crowds return in force. Worse yet, infected patrons will be hopping on planes and heading back to destinations all across the United States, acting as potential "super-spreader" carriers.

Meanwhile, gambling has become hazardous to your health in Arizona, where a security guard at the reservation-owned Gila River Hotels and Casinos just died from COVID-19, forcing the nation to "temporarily" close its doors. The operator had reopened gambling halls on May 15 and was ramping up lodging operations at the time of the incident, which has now forced a reassessment of "current safety standards."

Slow Recovery

Although not a public company, Gila River's crisis adds to bearish sentiment about the industry and the risk of venturing into a smoke-filled room with folks who might not care about your health. Macao operators that include Wynn Resorts, Limited (WYNN) are running into similar skepticism, with the Gaming Inspection and Coordination Bureau reporting a 93.2% decline in May year-over-year revenue, even though major casinos were open for the entire month.

Casino stocks have underperformed the S&P 500 index in the past four months, recouping little more than half their losses and failing to remount major support levels that were broken in the selloff. In turn, this relative weakness adds to a long-term bearish technical outlook, in which market players can't rule out a renewed decline and test of the March low. In many ways, the fate of casino stocks in 2020 may be similar to the airline group, with apparent "normalcy" failing to restore the majority of lost revenues.

Technical Outlook

Las Vegas Sands Corp. (LVS) manages casino and lodging properties in both Las Vegas and Macao. The short-term price chart looks similar to rivals Wynn Resorts and Boyd Gaming Corporation (BYD), which manage 29 properties in Nevada as well as the Midwest, South, and East. The stock topped out at a multi-year high near $40 in the second quarter of 2018 and entered a modest decline that found support at $19 at year end.

Sideways action persisted through 2019, finally yielding a January 2020 uptick that posted an 18-month high in February. It then sold off more than 80% to a seven-year low in the single digits before a bounce made rapid progress into late March, nearly tripling in value. Price action eased into a lazy uptick in April, finally reversing at 200-day exponential moving average (EMA) resistance and the 50% selloff retracement in the first week of June. The decline settled at the 50-day EMA, which the stock has crisscrossed repeatedly since April 27.

The on-balance volume (OBV) accumulation-distribution indicator slumped to a three-year low in March and turned higher in an accumulation wave, underpinned by bottom fishing and short covering. The advance almost reached the 2018 high before pulling back in the past two weeks. This bullish divergence should support higher prices in reaction to relatively minor catalysts. It doesn't take rocket science to understand that upticks in casino floor traffic could ignite that fire.

The Bottom Line

Growing obstacles raise doubts about the long-term outcome of Las Vegas and Macao recovery efforts following their pandemic shutdowns.

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