PreMarket Prep Stock Of The Day: Penn National Gaming

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

During Saturday’s educational webinar "Introduction To Professional Trading," co-host Dennis Dick did a segment on "Trading Off Relationships."

In the most simplistic terms, this is a form of trading and investing in which following the price action from one issue in a sector may help identify other issues that may move in sympathy.

The price action in Penn National Gaming PENN — Wednesday's PreMarket Prep Stock of the Day — is a great example of this dynamic. The stock is in the midst of a major four-day run. 

Penn National's Winning Streak: After ending 2019 at $25.56, the issue sunk to a new all-time low of $3.75 in March 2020 but rebounded sharply. 

From that low it was higher in the 10 of the next 11 months, ending February of this year at $115.78.

On the heels of being added to the S&P 500 index, Penn National ripped to $142 in March and sharply reversed course.

On the same day, March 15, that it peaked at $142, the issue posted its all-time closing high at $136.47. Interestingly, the day it was added to the index it ended the session at $113.16.

Penn National's Losing Streak: Beginning in March, the issue embarked on a five-month losing steak. That streak was extended into this month, when the issue bottomed at $61.02.

That low came in well above its October 2020 low ($52.09) and well below its December 2020 low ($67.18).

As of Thursday, the issue was still in the red for the month, as it ended that session at $65.08 vs. July’s month-end close of $68.38.

The Leader: Despite Penn National having a much better second-quarter report than its peer Draftkings Inc. DKNG, the Street has heavily favored DraftKings as an investment.

The two issues reported within one day of each other (Aug. 5 for DraftKings and Aug. 6 for Penn) and on a relative performance basis, DraftKings was the place to be until Thursday.

This is evidenced by the closing price of both issues since Thursday’s close. Based on the closing prices from Aug. 6, the returns are quite different. While Draftkings was flat at $51.54, Penn was actually down 9.4% ($71.84 to $65.08).

Narrowing The Gap: Once again, based on Thursday’s close, there was a 9.4% disparity in the price appreciation between DraftKings and Penn.

As of 1:40 p.m. EST Wednesday, Penn has come roaring back.

At the current price of $78.65, Penn is higher by 21% over since Thursday. Meanwhile, DraftKings is higher by 15%, narrowing the gap the from negative 9.4% to only 3.4%.

Penn National Moving Forward: Although the disparity in prices over the last four days may seem small on a percentage scale, investors should be aware of the longer-term picture.

While Penn does trade at premium of 19% ($78.50 vs. $59.50) currently, when comparing the same number at the respective all-time highs both stocks made in March ($142 vs.$74.38), the differential was 67.62%.

It's impossible to determine whether the two issues will have the large disparity ever again, but it certainly worth noting the explosive potential of their trading relationship.

Disclosure: The author is long PENN calls.

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