Following the major market sell-off in 2008, gaming system manufacturer International Game Technology (IGT) traded in a rather lackluster fashion. Since the summer of 2012, however, the stock has strung together a significant rally that has brought it to a critical resistance point. If it can break to the upside, it will flip the longer-term charts to the bulls' side.
On the weekly chart below, which looks back to 2007, we can see the stock's sluggish behavior in recent years. After forming a classic double-top with its highs in January 2007 and February 2008, IGT began a vicious downward spiral to the tune of 85%, which didn't come to a halt until November 2008. In other words, the stock's too-good-to-be-true incline from 2000-2004 (not shown on the chart) was almost entirely retraced in about nine months during 2008.
This is yet another example of a stock gone vertical that in due time gives way to the law of gravity and comes back down to Earth. When such stocks fall, they usually do so violently -- just think of Netflix (NFLX), Chipotle Mexican Grill (CMG) and Apple (AAPL). The good news is that, as long as they remain solid business stories, over time they usually set up profitable long-side trades once again.
After retesting its late 2008 lows in March 2009 (when the broader market as measured by the S&P 500 bottomed), the stock staged a significant reflex rally, which lasted into September 2009. This double-bottom remains a first important positive feature on the multi-year chart.
At that point, the sluggish downward-sloping trading range set in and IGT became quite boring to watch until just recently. In August 2012, it developed an important higher low versus the 2008/2009 double-bottom, which set the stage for the stock to break past its multi-year resistance (red line) in early February 2013.
Since breaking out past the resistance line, IGT has traded in a choppy consolidation phase. This type of action after a breakout is bullish, as it readies the stock for a continued push higher over time.
After reporting better-than-expected earnings on April 25, the stock reacted negatively for a brief moment, but the weakness was quickly followed by renewed buying -- a further testament that IGT may be ready to push meaningfully higher again.
Immediate resistance now sits around $17.50, and a daily close above this level would set IGT up for a move to the $19 area, which served as a double-top in 2011 within the context of the multi-year downtrending channel.
Recommended Trade Setup:
-- Buy IGT on a daily close above $17.50
-- Set stop-loss at $17
-- Set initial price target at $19 for a potential 9% gain in 4-8 weeks
- Investment & Company Information