Wynn Resorts, Limited (WYNN) stock has rallied more than 20% in the past month, underpinned by growing optimism that a trade deal will improve discretionary spending by Chinese and Asian citizens. The hotel chain has a heavy stake in Macao lodging and casinos, with that venue undergoing a major slump while China's economy continues to weaken. Civil disruptions in Hong Kong have contributed to the malaise, emptying hotel rooms and gaming tables.
The company has also been forced to deal with marketing fallout triggered by former CEO Steve Wynn's scandalous departure and a well-publicized divorce highlighted by major conflict about his corporate assets. Those headlines have finally wound down, but perceptions take time to change, as we've seen with other corporate nightmares, including Wells Fargo & Company's (WFC) fake accounts and Chipotle Mexican Grill, Inc.'s (CMG) poisoned customers.
Wynn Resorts stock has spent most of 2019 testing support near $100, which was broken in the fourth quarter of 2018. A January bounce remounted that level, but the uptick stalled following a proportional bounce into April, giving way to a series of lower highs and horizontal lows. Price is now situated near the midpoint of this trading range, carving a holding pattern while awaiting developments in Beijing and Hong Kong.
The company reports third quarter earnings after Wednesday's closing bell, with Wall Street analysts expecting $1.67 billion in revenues and $0.90 in earnings per share (EPS), or a little more than half of the profit posted last year at this time. The stock barely budged after the company beat second quarter metrics in August, highlighting limited buying interest as a result of external political catalysts.
WYNN Long-Term Chart (2001 – 2019)
An October 2001 initial public offering opened in the low teens, yielding a slow-motion uptick that paused in the mid-$60s in 2005. A 2007 breakout caught fire, reaching $165 in the fourth quarter of that year, ahead of a steep decline that settled at a six-year low just two points above the IPO opening print in March 2009. The subsequent recovery wave unfolded at the same trajectory as the prior decline, completing a V-shaped pattern into the prior high in 2011.
A 2013 cup and handle breakout triggered a rapid advance into 2014's all-time high at $249, followed by a decline that failed the breakout in the first quarter of 2015. Selling pressure continued into January 2016, dumping price to a five-year low around $50, ahead of a bounce that failed at the .786 Fibonacci sell-off retracement in the first half of 2018. Aggressive sellers took control after the CEO scandal hit the headlines, dropping the stock into the double digits in October.
Price action in 2019 has carved a basing or continuation pattern that is bounded by support at $100 and resistance at the narrow alignment of two Fibonacci levels under $150. A breakout above that barrier would set off double bottom buying signals, greatly improving the long-term technical outlook. On the flip side, a breakdown through $100 could be devastating for long-suffering shareholders, exposing a continued slide toward the 2016 low near $50.
The monthly stochastics oscillator crossed into a buy cycle just above the oversold level in October and has expanded higher in the last four to six weeks. This bodes well for continued upside into the $140s, but this week's earnings release is likely to dictate shorter-term price action. Actual results may not be as important as tone and sentiment after the news, with good odds that investors will ignore any third quarter weakness and look forward to a more productive Macao environment.
The Bottom Line
Speculators are accumulating Wynn Resorts shares, hoping that a trade deal underpins Macao gambling and lodging receipts.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.