Since the beginning of September 2010, MGM has been in a strong up trend moving back over its daily 50 day MA, 200 day MA to finally currently trend above its 20 day MA. MGM has since moved from approximately $9.00 to $16.00; an almost +80% move. However, despite being in a strong up trend, MGM being a high beta stock did have its share of hard pullbacks. In October 2010, MGM broke down from $14.00 to $11.00; an over -21% loss. This is the risk that a trader trading high beta stocks has to lives with, and that is why I usually prefer to be in and out from these type of stocks when each minor trend breaks down. However, if you time your entry well when an up trend begins, the high risk taken can be very rewarding. That is why it is extremely important to get into this type of stock only when it has either bounced back up major support or broken over and held up above major resistance. Make sure also to get in when there is enough support very near your entry price level or you could easily get whipsawed in a matter of days and incur potentially a big loss if you don't set stop loss orders.
When we analyze the daily chart more closely we can see that an ascending triangle pattern had formed during the past 4-5 months which was confirmed when MGM broke above major resistance at $14.00 on a 4th try in about 3-4 months. You can sometimes anticipate a breakout but it is usually best and safest to wait for the breakout. In my case I had taken my long position in MGM just a couple days before after seeing MGM bounce back up its up trend around $13.25. Ascending triangle patterns typically break out on 4th attempts and did give a STRONG BUY SIGNAL around the 3rd week of December which was later confirmed when the price continued moving up. Although ascending triangle patterns will not always play out as expected or even succeed to break out; in this case we can observe a typical ascending triangle pattern. During this trend, MGM volume has trended down which is again a typical trait for this pattern. Something interesting is that despite the price break out occurring on the 3rd week of December, the volume has only broken up this past Friday and closed near its 52 week and 2 year high around just above $16.00. In the past 2 weeks MGM has had 3 break outs which is very positive and usually hints at potential higher price to be hit. (The break outs can be observed as the breaks in the chart in the last 2 weeks). After, MGM broke up over the $14.00 major resistance, this allowed us to set a short term price target of around $19.00-$20.00. This is calculated by measuring the dollar length of the pole ($14.00-$9.00= +$5.00) and then adding up the dollar length ($5.00) to the major resistance level that was broken ($14.00+$5.00=$19.00). (Please note that these numbers are approximate and I didn't bother to make the estimated to the very cent exactly).
The $19.00-$20.00 short term daily price target does coincide with the next major resistance level on the weekly chart above the current one of just above $16.00. What's very interesting now is the fact that when we look at the weekly chart we can observe another ascending triangle pattern that seems ready to break out. Since March 2009, after MGM bottomed around $1.50 it had managed to make a huge run up to roughly around the price level we are now around $16.00 at the 52 week and and 2 year high. At the time I had successfully predicted MGM would pop from around $6.00 to $12.00 about a day or two before, based on the short term daily pennant pattern. Little did I know that it would happen so fast, but in early 2009 when MGM along with the market that bottomed we were going through a tremendously volatile and crazy period. Since April 2009, MGM has failed to move above the $16.00 price level on 3 occasions, and guess what MGM is now about to test this price level for the 4th and possibly last time, possibly as early as this Monday. Like its daily trend, the weekly chart indicates that MGM has bounced back 4 times from its support levels of its ascending triangle pattern. Now what could potentially happen very soon? If MGM manages to finally break above $16.00 and close at least above $17.00, we may see a quick move towards daily pattern price target of $19.00-$20.00 which coincides with the next resistance level on the weekly chart. Now, if this breakout indeed occurs, this would set a weekly price target of approximately $31.00-$32.00 which coincides with the major resistance level at the weekly 200 day MA. (Calculations:$16.00-$1.00=+$15.00 pole length; $16.00 or $17.00+$15.00= $31.00-$32.00). Again just like the daily ascending triangle pattern, the weekly trend did have a period of down trending volume which was broken a couple months as the price continued moving up. To have a successful breakout, MGM should have a substantial amount of volume to sustain a higher price level above $16.00-$17.00. MGM volume has already surged on Friday, and we should expect an even higher increase in volume.
Now many of you may be very tempted to get into MGM, but keep in mind that I have a set a WAIT signal because MGM has not yet broken above $16.00-$17.00. Taking a long position at this level should be considered gambling more than anything. If MGM were to fail again to break out, MGM path would be opened to break back to as low as $11.00 around its weekly 50 day MA. In this situation, even though you may have to leave some potential profits on the table it would be best to wait for a break out above $16.00-$17.00 before taking any long position. An entry above these levels after a break out will turn this major resistance level into a major support level. I had taken, my long position around $13.25 at a safe level because MGM had just bounced back up above its up trending support level. If MGM breaks above this 52 week-2 year high, we will have a STRONG BUY SIGNAL which would be confirmed after a couple days of seeing the price maintain above it, and likely retesting it before moving higher. Whenever any stock breaks major resistance levels and moves very quickly higher, most stocks will typically pullback shortly after back but still above these resistance level which would then be confirmed as new support level. Please be careful before taking any long position, and do your own research and keep in mind that trends don't always necessarily play out the way we might expect. Myself personally, I will always have an -8.00% trailing stop loss order set to make sure to not lose most of what I have gained. I strongly suggest to use stop loss orders to protect your capital and prevent yourself from making major losses as these high beta stocks can be brutal and have very quick and sharp pullbacks. Even though I give MGM a long term target of $32.00, MGM will most likely go through a lot of volatility before reaching this price level. This is why I prefer riding short term up trends and getting out during short term down trend, to then eventually get back into new short term up trends. Keep in mind that these short term trends may occur during a long term up or down. Based on a 3 year horizon, MGM is basically still in a very long term down trend still trading below its 200 day MA. But obviously, because of the high beta and volatility a lot of gains can be made in short term up trends within long term down trends. The higher the beta, the shorter investment horizon you should have, since the stock will typically move much faster than the market and new trends may start and end quicker than lower beta stocks.
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