Wynn Resorts (WYNN)

Market Cap: 10.3B
Sector: Consumer Discretionary- Resorts/Casinos
EPS Q/Q: 267.7%
EPS Growth Next Year: 34%
EPS Growth Next 5-yrs: 21%
Forward P/E: 21
Dividend Yield: 1.94%

Roll the Dice on WYNN

If you have been to Las Vegas you have no doubt been pleasantly awed by Steve Wynn's creations. The Bellagio, The Mirage and Wynn Las Vegas are his designs, in my opinion they are some of the nicest casinos in town.  The art, the class, and luxury are what make Steve Wynn's resorts unlike any other. In 2000 Steve Wynn sold his company Mirage Resorts to MGM, he then proceeded to take Wynn Resorts public. He currently remains the Chairman and CEO.

Vegas however is not where the primary focus of the company lies. The Macau exposure always takes the driver seat in terms of market performance. If Macau is poor, WYNN struggles and vice versa. Anytime an investment has to deal with Chinese market influences results can be volatile. But with volatility and skepticism comes opportunity.

While most continue to hem and haw over future uncertainties, WYNN stock has now doubled off its January low and has been leading the market on this most recent recovery.

I'm a "price action" guy; I believe the market moves ahead of good/bad news. This is always evident after the fact where once the stock makes a huge recovery, fundamentals begin to show improvements. By the time the story catches up to the market you've missed the meat of the move. I believe the market is showing us something here. While investors remain skeptical on China, the stock continues to reverse its 2-year downtrend. For the first time since early 2014 WYNN has formed a major higher low on its weekly chart.

 The Weekly chart shows a clearly formed Head/Shoulder Bottom formation and this week we saw the highest closing price for the stock since August of 2015. The new closing high has triggered this base formation and suggests higher prices are ahead.

The 20 WMA is below price and rising and above the 50 Week SMA for the first time since 2014. This tells me a significant trend change is underway. The risk/reward sets up very well as we can use the new higher low as our reference point to trade against. As long as WYNN stays above $87 on a weekly basis we want to be own this stock.

If we zoom in a bit and look at the Daily chart we can see the stock made its highest daily close since last August and is now breaking away from a 3-month sideways period. Following the torrid rally off the February lows WYNN has had a chance to cool off and position itself for the next run.

Its very useful to note how the stock behaved over the past few weeks as a hint to its future direction. While the market rallied to a higher swing high at the end of May, WYNN followed suit with a 20% gain in about 13 trading days. Since the early June peak for the S&P500, the market has pulled back roughly 3/4 of the prior rally. WYNN on the other hand traded perfectly sideways for the last 7 days and on Friday (another weak day for the market) broke to nearly 1-year highs.

This kind of Relative Strength is exactly what we want to see; rally with the market on the way up, consolidate sideways while the market pulls back, and then lead higher on the next advance.

Comparing WYNN to its peer group is also a helpful way to identify Relative Strength. When we look at the two other major Casino/Resort companies LVS and MGM, we can see that since the February lows WYNN has dominated vs its competition.

There is no question who the market favors in this group. Money is flowing into WYNN. Its our job to identify this behavior and jump on for the ride.

Our first objective will be to fill the open gap from April 2015 at $130.48. That gives us a roughly 30% upside target initially and then we can reevaluate the position. With an initial stop at $87 and target at $130 we will have a 2-1 risk/reward to start.

Trends have a way of persisting longer than seems reasonable so its very possible we continue to see more upside beyond this early assumption. As long as the trend remains strong we will want to be positioned aggressively in the stock. Seeing how WYNN traded at $250 per share as little as 2-years ago its very possible substantial upside exists beyond our basic estimates. At $103 per share we are getting a great entry point in an industry leader just as it is emerging from the depths of a major bear market correction.