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Gaming The Market

10/13/10 09:13:37 AM
by Billy Williams

For some, trading in the market can be like betting in a casino, but here are some casino stocks that are definitely worth betting on.

Security:   WYNN, LVS
Position:   Hold

When times get tough in the stock market, traders and investors retreat to "sin" stocks such as tobacco, beverage, entertainment, and gambling. The logic is that even when times are bad, people are still looking to entertain themselves, which makes these stocks a good place to park excess cash. Consumers will typically trim what they spend on clothing, junk food, and housewares but nonetheless budget for some form of entertainment.

Las Vegas has long been considered the Disneyland for adults, but even grownups can find attractions where they can take the kids to, with family-friendly casinos like Excalibur and Luxor. Casinos are not just the refuge of grizzled poker players and adrenaline-fueled craps players but also focus on creating memorable experiences for all visitors by recruiting high-powered entertainers like Celine Dion and the Blue Man Group.

FIGURE 1: WYNN. WYNN breaks out from a six-month trading range with very strong volume fueling it.
Graphic provided by:
Now, that's not to say that gamblers are forgotten about, as casinos like the Golden Nugget remember their roots and host poker tournaments that cater to the hottest card games like Texas hold'em, attracting not only veteran card players but Hollywood celebrities like Ben Affleck, Matt Damon, and Jon Favreau as well.

Despite the downturn in the economy as well as the low tourist turnout in recent times, Las Vegas is still one of the leading hosts for conventions as well as a major global attraction. And because of this, casino stocks are looking more attractive from a technical standpoint as trends begin to emerge or continue to gain strength. Wynn Resorts (WYNN) is a fixture on the Las Vegas Strip and has been feeling some of the ill effects of the economic downturn in both Nevada and the rest of the US (see Figure 1).

However, it continues to bring in millions of dollars from overseas tourists who are flush with cash to spend on entertainment, hoping to take in the sights and a show while also trying their luck on the casino floor.

FIGURE 2: LVS. LVS was also stuck in a tight trading range, suffering one false breakout, but then, after finding price support, an upward trend emerged.
Graphic provided by:
Wynn's price action has been in a six-month period of consolidation as it has traded back and forth in a trading range. On October 8, 2010, price exploded in a breakout that was fueled by a surge in trading volume almost three times its 20-day average. Price continues to follow through, indicating that Wynn's shares will go higher, provided there is no technical breakdown where price retreats back below the breakout above resistance.

Las Vegas Sands (LVS) is another icon among the casinos in Sin City, with its stock in a solid trend in place since early September (see Figure 2). Price had been in a long drawn-out period of price contraction, trapped in a trading range as well, but then emerged with a false breakout on August 4, 2010, managing to find support before taking another run, this time succeeding in trending upward. Along the way, LVS offered a few low-risk pullbacks to enter safely in the trend and provided that the overall market continues to stay positive, LVS should go higher still.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

E-mail address:

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