The one thing it doesn't have is a movie studio. MGM Studios is a separate beast. So MGM the stock behaves like others in the gaming industry: When the economy turns down, people don't flock to the tables. They watch a movie instead. And gaming stocks suffer.
| sym | chan | adx | traj | psar |
|---|---|---|---|---|
| MGM |
The current bear phase is in part a result of earnings. The company has had a string of quarterly losses dating back to June 2009.
And the rest of the financials are no better: Loss on equity of 41.85%. Debt equal to four times equity (a debt/equity ratio of 4.0x). These are not numbers to inspire confidence in a business recovery anytime soon.
Like all gaming companies, MGM suffered as jobs evaporated and people tightened their belts and hunkered down into survival mode, where many, wisely, remain today. The company fell to below $2 a share in March 2009, and has since more than sextupled during the recovery.
However, it took a sharp tumble in January as earnings approached, and has continued to fall through the announcement. The stock exited bull phase on Feb. 22, but the handwriting was on the wall as early as Jan. 19, when the stock suffered a 4.9% one-day loss.
| sym | bday | blevel | stop | 2-day? |
|---|---|---|---|---|
| MGM | mar10 | $13.10 | $13.49 |
The stock is trading where prices paused last November on the run up to the Jan. 18 swing high.
Aside from Friday's low, the next downside price resistance is the Oct. 19 low set during the prior pause in October as the price stair-stepped up.
The most recent swing high was on March 9.
Reversal Levels
- $16.94, +33.0% (jan. swing high)
- $13.85, +8.7% (march swing high)
- $12.74 --- You are here.
- $12.55, -1.5% (friday's low)
- $12.30, -3.5% (200-day moving average)
- $10.70, -16.0% (october swing low)
Bottom line: Bad financials, strong signals, rising strength of the downtrend -- what's not to like? Because today's price swing seems likely to finish within the limits set on Friday, I structured my position as an April bear call spread so I can profit if the price pauses and limit my losses if it reverses. I expect the decline to continue, but I've been surprised before by gaming stocks, so I'm hedging my bets.
Key
- chan: Channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
- adx: Average direction index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 30 and up but below 40, magenta (light purple) for 20 and up but below 30, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, purple for sunset on the horizon and brown for the earth.)
- traj: Trajectory of the ADX, green for strengthening, red for weakening or yellow for unchanging. Note that if the adx column is orange and the trajectory column is red, then the position must be closed.
- psar: The parabolic sar, either green for bullish or red for bearish.
- bday: Breakout day, the day the price broke through the upper or lower 55-day price line.
- blevel: Breakout level, the price level of the line that was broken through.
- stop: The current stop/loss price. Early in a bull or bear phase, this will be 5¢ below the low or above the high, respectively, on breakout day.
- 2-day?: Marked with an "✔" if the two-day rule is in effect. Under the rule, if the price closes below the breakout level on each of the two days following breakout day, then the position must be exited.
About channel analysis
Read a detailed explanation of my channel analysis method, including trading rules.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
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