Shares of Wynn Resorts (NYSE:WYNN) have been on a winning streak lately. WYNN stock has risen nearly 45% year to date on hopes that the Chinese tariff tensions will ease. Certainly Wynn was sold down too far on China slowdown fears. By the same token, the recent red hot rally has taken the stock too far, too fast. Time to cash in the chips on WYNN.
Source: Aurlmas via Flickr (Modified)
The latest move higher was fueled by an upgrade yesterday from Jefferies’ analyst David Katz. In the note he raised his rating to a “buy” from a “hold” and also upped his price target from $117 to $190. A $73 price target hike seems somewhat farcical to me. Interesting that he also said that investors tend to worry less about stock valuations when conditions are improving. While I agree conditions may be better, I always worry about valuations — and valuations are getting a little extended.
Earnings for WYNN stock are expected in late April. Expectations are for $1.55 EPS and $1.53 billion in revenue. Important to remember that Wynn has missed on earnings the last three quarters, yet WYNN stock is actually higher. This means valuations have become more pricey. Anything but a solid beat should likely be a negative for the stock, especially given the recent torrid move higher.
Wynn is now extremely overbought from a technical perspective. The 14-day RSI is now at the highest level in the past year with readings nearing 80. MACD has also reached extreme levels having just breached 3.
WYNN stock is trading at by far the largest premium to the 20 day moving avearge over the past 12 months. This is yet another sign that the the price action has gotten a little too euphoric.
WYNN has now closed higher for eight consecutive days, rising almost 25% in that time frame. There is major overhead resistance at the $150 area as well.
Traders should look to short WYNN on any rally as shares near the $150 area. Option traders may want to take advantage of comparatively elevated option premium and sell the April $150/$152.50 bear call spread for 60-cent net credit. Maximum gain on the trade is $60 per spread with maximum risk of $190 per spread. Return on risk is 31%. The short $150 strike price provides a 3.45% upside cushion to the $144.85 closing price of WYNN stock.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.