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Chart Says This Casino Stock's Swift Sell-off is Set to Continue

Headquartered in Las Vegas, Boyd Gaming (NYSE: BYD) owns and operates 22 gaming and entertainment properties in Nevada, New Jersey, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi. The stock broke to new multiyear highs in the fall, but has since taken a significant turn for the worse.

On Jan. 14, the company announced that it was pleased and "extremely encouraged" by the performance of its Borgata online wagering business. However, it wasn't nearly as upbeat about the December results for its land-based casinos, which it noted were affected by severe winter weather.

The company was quick to reiterate its positive outlook for fiscal year 2014, but investors did not seem impressed. BYD sold off 2.4% on the day and has traded lower ever since.

Negative news from a competitor has also contributed to BYD's decline. On Friday, gaming equipment maker International Game Technology (NYSE: IGT) sank 15% after it missed earnings expectations and said full-year earnings would be at the bottom of its forecasted range.

This news, in addition to the broader market sell-off, put pressure on casino stocks. BYD was off almost 8% on the day, causing technically significant damage on its chart, at least in the near term. 

Casino stocks are sensitive to cyclical moves in the market. I remain of the opinion that the U.S. stock market is now in a new secular bull market, but toward the end of a cyclical bull market. Therefore, I view casino stocks to be constructively positioned for the longer term, but they could trade in a more volatile fashion with a downward bias for 2014 and the first half of 2015.

This isn't to say that there won't be rallies here and there, but it appears the "easy" trend-following money has already been made in the past 12 months or so.

On the long-term chart, BYD remains in a neutral spot technically. It is now trading roughly in the middle of a wide trading range that dates back to 2009.

BYD Stock Chart - Weekly

However, in the near term, momentum is clearly pointing down, as indicated by the Relative Strength Index (RSI), which is shown at the bottom of the above chart.

This weakness is further supported by the daily chart below.

BYD Stock Chart - Daily

After coming off its October highs, the November to early January rally stopped right where it should have, namely at a confluence area made up of the 100-day and 200-day moving averages, as well as the 50% retracement of the October to November sell-off.

Friday's 7.58% decline took BYD to a critical juncture, i.e., the November lows, which coincided with a level that acted as resistance for a couple of years until broken to the upside in April. Selling continued Monday with the stock shedding another 3%.

From here, with the help of a little risk-off theme in the broader market, BYD looks to have a good amount of downside potential. Just keep in mind that the company is scheduled to report earnings on March 3. 

Recommended Trade Setup:

-- Sell BYD short at the market price
-- Set stop-loss at $9.85
-- Set initial price target at $8.90 for a potential 6% gain in 2-4 weeks