Southeast Asia returned to the gaming tables in 2010, lifting Macau entrepreneurs
Las Vegas Sands
to multiyear highs. Las Vegas Sands handily outperformed its rival, tripling in price, compared to a 78% run for Steve Wynn's namesake. Both rallies stalled in November, at the same time that China took steps to cool down its overheated economy.
No, it doesn't make sense for these international giants to trade like China stocks, but the Macau projects have been market movers for both operations in recent years because revenue growth in their American properties has dropped substantially in reaction to a weak economy and overdevelopment in key gambling hubs.
Despite Asian rate jitters, it's unlikely that actions taken to reduce Chinese growth will greatly affect gambling revenues, so these stocks can easily survive and head higher in the next few months. However, despite their similarities, I expect Wynn Resorts to outperform Las Vegas Sands in 2011, given a more bullish reaction to macro challenges since the November downturn.
Let's examine both issues, in their long- and short-term perspectives, and set price targets for the next six to 12 months.
Wynn Resorts hit an all-time high at $176 in October 2007 and plummeted during the bear market, losing more than 90% of its value before bottoming out near $15 in March 2009. The subsequent recovery stalled right at the 62% retracement of the steep decline in November of this year, giving way to a shallow pullback that tested round-number support at $100.
The uptrend has evolved in a rising channel that shows a graceful series of higher highs and higher lows. The stock passed a key milestone in October when it gapped up above multiyear resistance near $97 (red line). Challenges remain, as you can see from the 2008 swing highs between $115 and $120 (red circles), because they're located at the same level as the reversal two months ago.
The tight alignment between Fibonacci and long-term price development points to $142, or the 78% retracement, as the next upside target after the stock clears the November high. Beyond that level, the uptrend should have a straight shot back to the 2007 high, which marks a significant barrier that should not be overcome for a number of months.
Funds and individual investors held their ground during the two-month correction, with On Balance Volume (OBV) showing a gentle downward slope that turned the corner more than a month ago. The pullback into round-number support at $100 aligned with the 50-day moving average, setting the stage for this week's strong recovery.
The stock broke out of a six-week basing pattern this week, leaving behind an island reversal. This is a good-looking pattern that should yield a quick surge to resistance between $115 and $120. However, a breakout over that price zone could take time, as noted from the red circles on the weekly chart, and not happen until a trading range sets up between the November high and December low.
Las Vegas Sands ran into severe credit issues during the bear market, with many analysts predicting the company would eventually be forced to declare bankruptcy. Its perilous condition contributed to a spectacular decline from $148 to under two bucks, with the stock finally bottoming out with other equities in March 2009.
The recovery has been relatively stronger than Wynn Resorts because the stock has more lost ground to recover. However, it still exhibits signs of weakness, despite higher percentage gains in the last two years. This view is supported by the weekly Fibonacci grid, with the uptrend now stalled under the 38% selloff retracement, compared to Wynn's reversal at the 62% retracement.
Once the stock finally turns the corner and heads higher, it will run into strong resistance between $55 and $60. In addition, there are steep barriers at $75 and $92 (red lines), both equally capable of limiting the scope of a 2011 rally. Taken together, this issue faces too many technical obstacles to present a good investment or longer-term trading opportunity.
The daily pattern supports this generally bearish opinion. While Wynn Resorts found solid support quickly after the November reversal, Las Vegas Sands is still struggling in a correction that has yet to print a single higher low. Accumulation has also taken a bigger hit, with OBV now testing the low posted in December (green line).
Two sharp selloff waves since November are carving the outline of a bull flag pattern, which predicts a third lower low before the stock takes off on a strong recovery. So, if you're interested in owning this issue despite my negative comments, I recommend standing aside for now and waiting for that downdraft, which could easily reach the lower blue line near $40.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
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