Casino giant MGM Resorts (MGM) is set to release its earnings results for Q1 2025 after the close today, setting up a high-stakes showdown for the stock. The factors underpinning how MGM’s stock valuation is multifactorial, but essentially boils down to growing demand for gaming-related ventures clashing against broader revenue and earnings deceleration. However, one aspect few analysts are focusing on is the “behavioral transition” of MGM stock and, therefore, the bullish signal this provides.
MGM Resorts (MGM) price history over the past twelve months
Frankly, EV manufacturer Tesla (TSLA) provided perhaps the best example of the futility of so-called standard investment market analyses. After delivering a “horrendous” Q1 earnings miss, one would expect a rotten showing. Instead, it popped nearly 24% last week.
No, clearly, there is something else driving market sentiment — and that something, I firmly believe, is the behavioral transition a security experiences from fear to greed and vice versa. Fortunately, from my analysis, it appears that MGM stock is flashing a bullish reversal signal, presenting a compelling opportunity for speculative traders.
Deploying Discretization to Truly Understand MGM Stock
It’s often said that you should use fundamental analysis to find the right company and technical analysis to find the right price. Both methodologies, by their definition, suffer from a logical flow problem. Technical analysis attempts to project future pricing dynamics by studying past price activity. Fundamental analysis takes known numbers and applies magic ratios to them, as if that somehow extracts an underlying truth. Both price and financial performance metrics are scalar representations. Scientifically, they’re known as continuous-time processing signals because of their infinite range of possibilities.
Moreover, price and financial metrics are simply measurements. Using them to predict future valuation is like recording a person’s height and weight to estimate their blood pressure. Sure, perform this exercise thousands of times, and you will occasionally find pockets of correlation. The problem is that these incidences of correlation are sporadic and unreliable, which is precisely why visual-pattern-based technical analysis represents one of the least respected fields of discipline.
MGM Resorts (MGM) smart score
Understanding MGM stock or any security, for that matter, involves “discretization” — in practical terms, defining and categorizing market sentiment as behavioral states rather than as prices. In this manner, it becomes possible to see how sentiment evolves over time. More importantly, specific sequences can repeat, leading to empirical statistical analysis.
Such an approach is simply impossible with continuous scalar signals. For example, MGM stock doubled in price over the past five years. Therefore, MGM at $15 cannot provide much insight into what MGM at $30 will do. Similarly, financial metrics change all the time due to growth and divestitures. Raw numbers quickly lose meaning and are further divorced from the events to which they are anchored.
MGM Resorts Forecast EPS vs Actual EPS
However, the core behaviors of supply and demand, fear and greed, are generally universal across regimes—and that’s the power behind discretization.
MGM Stock Price Flashes Bullish Reversal Signal
In the last 10 weeks, MGM stock printed a seemingly disastrous pattern, which I call the “2-8” sequence: two weeks of upside interspersed with eight weeks of downside, with a negative trajectory across the time period. While it looks ominous, of the 10 times that the 2-8 sequence has flashed in the trailing decade, MGM managed to pop higher in the subsequent week seven times.
Significantly, in the roughly one-year period leading up to the last 10 weeks, the trajectory of MGM stock broken down over 10-week intervals has been leaning bearishly. The 2-8 sequence may represent the last hurrah among the pessimists. Stated differently, the bears could be getting exhausted, presenting an open door for bullish contrarians.
Chart showing MGM’s 10-week price history and forecast. Credit: Joshua Enomoto
Ordinarily, though, when the 2-8 sequence flashes, the risk-reward profile asymmetrically favors the bears, with the potential upside historically being 1.6% while the downside loss sits at 2.36%. Still, because of the anticipation related to earnings, I anticipate a much more vigorous response—and one that may favor the long side of the trade.
It’s worth pointing out that rival Caesars Entertainment (CZR), though it suffered a heftier loss on the bottom line than anticipated, posted revenue of $2.79 billion, thus beating the consensus view by 0.5%. Subsequently, a positive result from MGM may help push the needle forward.
Placing a High-Risk, High-Reward Wager
Speculators who wish to bet on a positive outcome may consider the 31/33 bull call spread expiring this Friday. This is wildly aggressive, involving the acquisition of the $31 call and the simultaneous selling of the $33 call, resulting in a net debit paid of $125. Should MGM stock rise through the short strike price of $33 at expiration, the maximum reward clocks in at $75, a payout of 60%.
MGM Resorts (MGM) Options Chain and Prices
Traders who prefer extra time with their options may consider the 32/34 bull call spread expiring May 23. This is significantly aggressive because MGM stock must perform slightly better than usual to hit the $34 short strike price at expiration. Should such a performance materialize at expiration, the maximum reward is $110 (from a debit paid of $90), or a payout of over 122%.
Is MGM a Buy, Sell, or Hold?
Turning to Wall Street, MGM stock has a Strong Buy consensus rating based on 14 Buys, three Holds, and zero Sell ratings over the past three months. The average MGM price target is $47.19, implying 48% upside potential in the next twelve months.
While most financial publications may focus on their opinions about what may transpire when MGM Resorts releases its Q1 earnings, the reality is that no one knows what those numbers will say except management. Instead, it’s more helpful to point out that MGM stock is flashing a rare contrarian bullish signal underneath all the surface-level noise.
This signal, though, can’t be discovered through the standard means of technical and fundamental analysis. Instead, investors must apply a process called “discretization” to study behaviors and their transitions, rather than their prices. By performing this exercise, it’s possible to extract quantifiable insights rather than trading on limited conjecture.
