Melco Crown Entertainment Testing Critical Technical Level: $5 Swing Is Possible

Despite the fact that Macau casino operator Melco Crown Entertainment Lrd MPEL reported a Q2 earnings and revenue miss this week, the company’s stock has been on fire, gaining about 7.0 percent over the last five trading session. Unfortunately for shareholders, the stock is now trading near some major technical resistance levels. The stock’s behavior over the next several trading days could prove to be extremely important from a technical perspective.

The Good News

There is both good news and bad news for Melco shareholders in the stock’s chart following its post-earnings jump.

First, in the short term, there are several positive technical indications for Melco. First, the peak of Thursday’s trading established the stock's fourth consecutive higher peak over the last three months. Second, after the stock broke above its 50-day moving average in early July, the line has since served as support for the stock. In late July, Melco re-tested its 50-day average and then bounced to new multi-month highs.

The Bad News

Unfortunately, the bad technical news for Melco is that the $22.70 level, which was the Thursday’s trading high, appears to be a fairly strong technical resistance level. That level marks the convergence of the roof of the stock’s current ascending channel, its 200-day moving average (a level that Melco has not penetrated since early 2014) and a long-term resistance line that dates back to the stock’s all-time highs back in early 2014.

In addition, the last time the stock appeared to be breaking out from its downtrend in February of 2015, the 200-day average brought the rally to a screeching halt and sent the stock plummeting to new lows.

What’s Next

Melco shareholders will be watching closely over the next several days for a significant break up or down from current levels. A break higher could represent a significant technical move and send the stock upward to test the $25 resistance level established in April. However, a break lower could mean more of the same is in store for Melco shareholders and send the stock down to re-test its 50-day average at around $20.50.

Disclosure: the author owns shares of Melco Crown Entertainment.