There’s Money In This Sector… Literally
Monday, November 3, 2008
by Jim Stanton, Technical & Quantitative Analyst, Smart Profits Report
Today was originally set to be my colleague Lee Lowell’s turn in the Monday rotation, but since I’m going to be on the road for the next couple of weeks, I’ve switched with him this week. Lee will report to you on the state of the commodities market in the next two Monday columns.
Before we dive into this week’s specific sector, let’s start with a general overview of the stock market and try to pinpoint its next move, using my 1-2-3 Trader analytical system.
Take a look at this hourly chart of the S&P 500, through October 31…
Watch For These Two Resistance Levels On The S&P 500
As you can see, the S&P 500 made its lows on October 10, but rallied almost 25% over the next three days as world governments and central banks made a concerted, coordinated effort to deal with the global liquidity crisis.
As often happens, news-related rallies can provide an initial jolt, but are ultimately short-lived. That’s what happened in this case, with the October 10 lows twice being tested since then. In fact, the December S&P futures actually made new lows on October 27 before this latest rally began.
The S&P 500 action, coupled with this type of chart pattern usually means that the index fell too far, too fast, and needs to consolidate for a while. And since both the S&P and Nasdaq 100 futures have traded below the October 10 lows recently, the odds are that it is in a bearish consolidation pattern. This should eventually resolve itself to the downside.
If the above assumption is correct, the rally should run out of steam on either side of the resistance levels - 986 or 1,044.
986: This level was tested last Friday and while the index could trade lower from here, the way the shorter-term charts are set up, I wouldn’t be surprised to see the 1,044 level tested.
1,044: If the S&P 500 can post a couple of closes above 1,044 on big volume and good advance/decline readings, it could change my intermediate-term outlook.
Now for this week’s sector…
From Aces High To A Massive Fold
From late 2005 until about a year ago, gaming and casino stocks racked up huge gains - especially those with a strong presence in Macau. These include Las Vegas Sands (NYSE: LVS), Wynn Resorts (Nasdaq: WYNN), and the MGM Mirage (NYSE: MGM).
Since late 2007, however, these stocks have endured a huge drop, losing 70% to 90% of their value. Casino-related stocks such as International Game Technologies (NYSE: IGT) and Shuffle Master (Nasdaq: SHFL) have also lost a good chunk of their value.
For China, allowing some U.S. casinos to enter the Macau market is a big deal. This paves the way for further penetration into the Asian markets, which is why the casinos mentioned above did so well from 2005 to 2007.
I don’t think it’s a coincidence that these three casino stocks made their highs in October 2007 - the same month that the Chinese stock market (SSE Composite) topped out. Since then, the SSE Composite has lost close to 70% of its value.
Chinese Visa Restrictions Stifle The Action Around The Craps Table
So why has this sector endured such a brutal selloff?
There are a number of other reasons, including recessionary pressures, a lack of funding for some of the U.S.-based Macau casinos, plus China’s efforts to limit the number of visas that residents of the southern Chinese province of Guangdong need to enter Macau.
As of October 1, residents now are allowed one trip every three months instead of two months - bad news since Guangdong customers are one of Macau’s biggest revenue sources. This has investors wondering if China has any additional changes in mind, with the uncertainty weighing on these casino stocks.
Until last week, that is…
The Upside And Downside Scenarios For These Three Sector Stalwarts
Last Tuesday, LVS, WYNN, and MGM all made their recent lows. But that was the trigger point for a huge rally, with the stocks then posting gains of 100% to 200% over a four-day period.
Let’s take a quick look at upside and downside…
Upside: Based on the intraday charts, these three stocks probably have higher to go, at least over the near-term.
Downside: The intermediate-term picture is a little hazier. None of the three have triggered daily buy signals yet. Moreover, if the stock indexes are in a bearish consolidation pattern and go on to make new lows, they could give back some, or all, of their recent gains.
However, if the S&P 500 makes new lows, and moves down to the 765 area, and these three stocks do not make new lows with the index, it should represent a good, intermediate-term buying opportunity.
How To Play The Casino Like James Bond
If the gaming and casino stocks have set their lows, LVS, WYNN, and MGM should benefit more than the others.
However, if you want to diversify and spread your risk in this sector, there are a couple of other ways to do it.
Take a look at the Ladenburg Thalmann Gaming and Casino Fund (GACFX). Unlike the Market Vectors Gaming ETF (AMEX: BJK), which is less than a year old, I prefer this fund because there is more data to analyze.
Here’s a weekly chart of GACFX, with a regression channel drawn from the October 2007 high.
The top of the regression channel this week is around $5.20, but for each week that passes by, the regression channel drops about $0.15. A couple of weekly closes above the regression channel should be bullish over the longer-term.
That’s all for this time. As I said, my commodities colleague will be with you for the next two weeks while I’m away.
Jim Stanton
How One Company's Groundbreaking "Cancer Blaster" Could Make You Rich
While the World Health Organization predicts 12 million people will develop cancer in 2009, this little-known company is fighting the surge with its amazing cancer-killing device...
Although most people know nothing about it, this "Cancer Blaster" has already saved thousands of people around the world... Like Ohio resident, Caroline Brubaker, who says "with just three, pain-free outpatient visits, I had my life back" or Richard Swanson of Arizona who ended up cancer-free after just 4 hours of treatment...
The best part is, the company recently discovered an extraordinary breakthrough that could go mainstream in a matter of days... Read the full details to find out how you can get in ahead of the event - and be on your way to booking truly incredible gains.
|
