It's Time to "Bet" on This Rebounding Sector

Don’t gamble. The stock market’s not a casino.

How many times have you heard that?

But what if a long-shot gamble pops up on your radar? And what if it fits perfectly into your trading rules?

Don’t worry, I’m not hinting at a huge, all-or-nothing trade here. But I am talking about casino stocks…

Casinos make millions from gamblers. But owning casino stocks over the past couple of years has been a losing bet for investors.

But it looks like these orphaned stocks have finally put in a bottom. That gives you the perfect shot at a sin stock quadfecta. We’ve been sinful enough with our sin stock trifecta. And now this?

Church groups might start protesting the Rude Awakening because our sin stock pile keeps growing by the week. Last month, I told you about how “Big Beer” is fighting for new acquisitions in the craft brewing space, which has sent many of these stocks toward new highs.

Then we pulled the trigger on a firearms trade with our controversial coverage of Smith & Wesson and Sturm Ruger & Co.’s market-blasting performance in 2015. We also threw in a cigarette trade for good measure. Thus the “sin trade trifecta” was born.

Now we have a quadfecta, as one reader suggests. And no, I’m not just talking up the casinos because it makes for a great story (or to rile church groups). It’s just that these stocks happen to look like such damn good buys right now.

They’ve been absolute dogs since early 2014, but they’re also straightening out their acts right now. First, take a look at how bad they’ve behaved:

The Market Vectors Gaming ETF has slipped nearly 35% lower since early 2014. That’s downright awful compared to the major averages. Judging by this performance alone, it’s easy to see why most investors are avoiding this sector.

So why have the big casino stocks performed so poorly? One word: Macau.

Macau is the Las Vegas of China. All of the major international gaming brands are heavily invested in Macau. And right now, gambling revenue is stagnant. That’s right—Chinese growth is once again throwing cold water on stocks.

Even Steve Wynn, CEO of Wynn resorts, had a much-publicized meltdown on a recent company conference call regarding Macau regulations. The Chinese government has been cracking down on Macau, which has been accused as a hub for money laundering, among other crimes. This has led to a series of shaky reforms that have kept high rollers away, caused confusion when it comes to new casino construction, and additional accusations of corruption.

That makes for a big wall of worry. However, The charts are showing us that casino stocks could be bottoming out here.

Here’s a long-term look at the Market Vectors Gaming ETF going back to 2011:

Notice how the sector has given back nearly all of its gains from its 2012-2013 rally. Now, it appears to be bouncing at support. That gives you the perfect opportunity for a snapback trade.

Sincerely,

Greg Guenthner
for The Daily Reckoning

P.S If you want to cash in on the biggest profits this market has to offer, sign up for my Rude Awakening e-letter, right here. Stop missing out. Click here now to sign up for FREE.