The U.S. Supreme Court ended Nevada's sports betting monopoly and opened that door for other states in a six-to-three ruling on Monday. Justices agreed that a 1992 Federal prohibition violated constitutional principles, triggering strong rallies in casino operations thousands of miles from the Las Vegas Strip. Meanwhile, Nevada's biggest companies sold off or ran in place, held down by the threat of lost revenues
Market players scrambled to find stocks that could profit from the ruling, and three names have risen to the top of the heap – Scientific Games Corporation (SGMS), Penn National Gaming, Inc. (PENN) and International Game Technology PLC (IGT). New Jersey is likely to offer sports betting at race tracks within weeks because the state brought the lawsuit and will have infrastructure ready to go by Memorial Day. Pennsylvania, West Virginia, Mississippi and New York could follow suit quickly, while another 12 states have introduced related legislation. (See also: Understand Betting Odds and Gambling: The Math Behind It All.)
Scientific Games Corporation (SGMS) stock topped out at $29.25 in 1994, following a multi-year uptrend, and broke out above that level in 2006. The rally failed one year later, triggering a steep decline that continued into 2016's 15-year low at $4.56. The stock returned to last decade's high in September 2017 and broke out once again, topping out in the mid-$50s in January 2018. It has been struck in a trading range since that time, with support at $39 and resistance at the rally high.
A straight line drawn from the 1994 to 2018 highs on the log-scale chart completes a trendline that reveals hidden resistance now located around $60. The stock rallied within two points of January's high in April and broke out on Monday in reaction to the news, stalling at the 24-year trendline. As a result, algos may target newly minted shareholders in the coming sessions, but the uptrend could eventually reach the $70s or $80s.
Penn National Gaming, Inc. (PENN) led its gambling peers through most of the last decade, splitting twice during an uptrend and skyrocketing from 29 cents into the 2007 high at $14.39. It sold off into the single digits during the 2008 economic collapse, while the subsequent recovery wave took five years to complete a round trip into the prior high. A 2015 breakout failed, generating a 41% haircut into the November 2016 low at $11.93.
The stock returned to the 2016 high in May 2017 and completed the breakout, generating a strong uptrend that topped out in the low $30s in January 2018. The subsequent pullback found support in the mid-$20s, grinding out a triple bottom pattern, ahead of a rally back to resistance. The stock broke out on Monday, while on-balance volume (OBV) surged to a new high, opening the door to a strong trend advance that could reach the $40s.
International Game Technology PLC (IGT) broke out above the 1993 high at $10.35 in 2000 and entered a strong uptrend that topped out in the upper $40s in 2004. A breakout attempt failed in 2007 and 2008, giving way to a vertical downtrend that found support in the single digits. A bounce into the new decade stalled in the mid-$20s, with that level marking resistance into a 2016 breakout that reached $32.97.
The stock spent most of 2017 stuck in an intermediate correction that ended in the mid-teens. It rallied within three points of 2016 resistance in November 2017 but has failed two breakout attempts since that time. An April bounce off the 200-day exponential moving average (EMA) is now gaining traction, generating a third test that could yield a strong advance into last decade's rally high.
The Bottom Line
Casino and race track stocks domiciled outside of Nevada rallied strongly on Monday in reaction to a Supreme Court decision that could legalize sports betting in many states. This uptick could gain traction in the coming weeks, with shares of top industry players potentially hitting new highs. (For additional reading, check out: How Millennials Will Impact the Casino Industry.)
<Disclosure: The author held no positions in aforementioned securities at the time of publication.>