Time to Gamble on Casinos... Again
Two months ago, we pointed out how the Dow Jones Casino Index (BJK) - which consists of names like Wynn Resorts (WYNN), Las Vegas Sands (LVS) and MGM Resorts (MGM) - had broken out of a long-term downtrend and represented a compelling entry opportunity. They got off to a strong start too. The market threw the uptrend a curve ball, however, and although the rally wasn't completely up-ended, it was put on ice.
This week, however, the bulls appear to have regrouped in the right place and in the right way, and rekindled the uptrend. It's the "how" that's a bullish as the "what," though.
The chart of the Dow Jones Casino Index (DJUSCA) below tells the tale. The group got hit pretty hard in April, but the index never actually broke below the support of the 100-day moving average line (gray). In the meantime, the 100-day moving average line has crossed above the 200-day moving average line (green), and just this week the 100-day average line has catapulted the group forward. The index is on pace to log the best week it's seen since March, and the rekindled rally effort is very well founded.
That being said, the clincher here for the well-grounded setup is the volume trend behind it. Based on the volume so far this week, we should see a major increase in bullish volume. We've already seen the Chaikin line cross above the zero level, confirming this budding rally has good participation.
There are certainly sectors and industries that have been hotter, or dropping different bullish hints. Most of them are already overextended though, and/or have valuation challenges. Casinos and resorts are valued at a palatable forward-looking P/E of 15.0, and the five-year projected earnings growth rate is a healthy 12.7%.
From a risk/reward perspective, you could certainly do a lot worse.