Stocks extended their gains for the third day in a row Thursday, marking a refreshing change in character for shellshocked investors. Many of the worst-performing industries have seen their constituent’s shares come rip-roaring back — airlines, cruise lines, casino stocks, home builders, restaurants — you name it.
But I suspect the easy part of the oversold bounce is over. While it’s possible we continue to melt higher; many equities are pushing into potential resistance zones that are bound to put up a fight. Plus, with their heavy losses now lightened, investors are one scary headline away from heading for the exit door. And that could spark the next descent.
Though we could pick any number of potential sectors to sell, we’re focusing on casino stocks. They’re on the wrong side of the social distancing trend and remain vulnerable to more downside.
Let’s build three bear trades to profit.
Wynn Resorts (NASDAQ:WYNN) has doubled off the lows and its chart still looks bearish. Buyers do deserve some credit, though. Volume during the ascent was massive and supports the argument that the March 18 low of $35.84 could be the ultimate bottom of this bear market.
WYNN stock fell as much as 77% from January’s peak, so you could argue the market priced-in all of the bad juju surrounding the coronavirus. But here’s the thing. With such a massive crash, there are bound to be aftershocks. Though possible, I’m betting against casino stocks recovering in a single bound. I think Wynn could probe lower again, even if it ultimately moves higher. And therein lies our opportunity.
The Trade: Buy the May $60/$55 bear put spread for around $1.28.
Consider taking profits on a push toward $60.
The argument for fading the strength in Las Vegas Sands (NYSE:LVS) is identical. While not as robust, its rally off the lows of 59% carried shares directly into the descending 20-day moving average. The underside of an old support zone near $52 was tested Wednesday and Thursday and is now acting as resistance.
The past two daily candles ended with topping tails. These long upper shadows suggest sharp intraday bearish reversals and confirm that sellers are gaining strength at these levels. A break below Thursday’s low ($46.51) could signal the next descent has begun.
The Trade: Buy the May $45/$40 bear put spread for around $1.75.
MGM Resorts (NYSE:MGM) rounds out today’s trio of casino stocks to sell. It shares the bearish characteristics mentioned above, but worse. From January’s peak to last week’s trough, MGM stock crashed 83%, which is insane. The market almost priced-in bankruptcy in a single downswing.
After such a horrific slashing, MGM is going to need more than a 159% rebound to save the sinking ship. Investors should be encouraged by the huge accumulation candles seen over the past few trading sessions. But even if the bottom is in, MGM is likely to drop back to test buyers’ resolve. I like teeing up bear positions for a quick trade.
The Trade: Buy the April $13/$9 bear put spread for around $1.
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