Wynn Resorts, Limited (WYNN) announced the resignation of CEO Steve Wynn more than three weeks ago, but the stock hasn't recovered from the major decline that followed allegations of sexual misconduct. It seems odd, given the company's willingness to address the scandal and refocus attention on a newly resilient Macau casino and hotel environment. (See also: Macau Resurgence Lifts Wynn Resorts Stock to 3-Year High.) This lack of buying power marks a bearish divergence, raising the odds for even lower prices in the coming weeks

The allegations ended a 14-month uptrend at a three-year high above $200, dropping the stock 38 points in two sessions before it settled near $160. The stock has tested that price level four times in four weeks, but committed buyers have failed to appear, raising all sort of red flags. It is especially odd because Wynn's resignation triggered a dramatic short squeeze that briefly mounted $180, indicating that the dark clouds would pass quickly. Instead, aggressive sellers reloaded positions and have tried repeatedly to break horizontal support.

The sobering tale of Chipotle Mexican Grill, Inc. (CMG) may be in order here, as the fast food chain was expected to bounce back quickly from the 2015 food poisoning scandal. Instead, its flat-footed management triggered wave after wave of selling pressure, nearly destroying the popular brand. (See also: Chipotle: Rise and Fall of a Wall Street Darling.) While Wynn's board acted quickly in dismissing the CEO, he was replaced by Matt Maddox, a loyal lieutenant who has served as the company's president since 2013. This has raised suspicions that Wynn will guide the company surreptitiously from the sidelines.

Potential buyers may be skeptical for other reasons as well. First, several states have filed lawsuits alleging board malpractice. These can consume valuable resources and generate years of adverse headlines. Second, the Wynn name atop the hotel empire may dissuade customers, especially women who are unlikely to forgive and forget. However, gambling and burritos are two different things, and it's unclear if the scandal will have a long-term impact, especially overseas, where the news has attracted less coverage.

WYNN Short-Term Chart (2016 – 2018)

 

The stock bottomed out at $82.51 in November 2016 and turned higher, carving an Elliott five-wave rally into the January 2018 top at $203.63. The sell-off completed a 100% retracement of the last impulse wave and reached the 50% rally retracement, setting off a first failure signal, marking an early warning for a trend reversal. The 14-month uptrend followed a trendline of rising lows, with the decline also hitting that support level. (For more, see: Wynn Shares Fall Again on CEO Misconduct Concerns.)

The short squeeze after Wynn's resignation filled the Jan. 29 gap and stalled at the 50% sell-off retracement, ahead of two slightly higher lows at $160.89 and $162.07. This tells us that a downturn should now find support near $164 or risk a breakdown that gathers rapid momentum when it triggers the growing pool of stop-losses in the upper $150s. The 200-day exponential moving average (EMA) now rising through $150 could offer a magnetic target in that decline, which is roughly aligned with the .618 Fibonacci retracement level of the entire uptrend.

Conversely, a rally above the Feb. 7 swing high at $180.10 is now required to ease the bearish technical tone and establish favorable conditions for a retest at the January high. On-balance volume (OBV) suggests that this won't happen, plunging to August support and posting a series of low-amplitude bounces that indicate weak or non-existent institutional and retail demand.

The Bottom Line

Wynn Resorts has failed to bounce since Steve Wynn resigned on Feb. 6, indicating growing anxiety about the company's first quarter revenue and profit outlook in the wake of the sexual misconduct scandal. Silence from the company about the short-term business impact has added to growing concerns, raising the odds for a range breakdown and even lower prices. (For additional reading, check out: 3 Gambling Stocks That Will Beat the House: Morgan Stanley.)

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

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