Bears Gamble on Las Vegas Sands

I'm not a gambler, but I like Las Vegas.

The summers are so hot that they remind me of the San Joaquin Valley, only with more lights and fewer grapes. I used to live there in the late 1980s, when the Mirage was the newest casino on the Las Vegas Strip and the burning question was whether the dolphins would survive the heat. (They're fine.)

I hadn't really been thinking much about Las Vegas lately until I read an article on Monday about the jobless rate in Nevada being up to 4.6% in May from 4.1% a year ago. That's a big number in Las Vegas because there have always been jobs galore -- all you had to do was decide where you wanted to work.

But don't think that the Las Vegas economy is shrinking, because it's not. The influx of people (particularly from the People's Republic of California) is still strong, but the job growth just isn't absorbing them as quickly.

There are a number of reasons for the rise in unemployment, one of which is the recent statewide ban on smoking in public places (yes, you can still smoke in the casinos, but not in bars that serve meals). Now, there are a lot of smokers in Nevada, and banning smoking there is like banning guns at a gun show.

But I digress. When I read about the job woes in Nevada, I decided to look at the resort and casino stocks to see how they are doing. Of course, MGM Mirage ( MGM) has been on a wild ride over the past month, and Penn National Gaming ( PENN) has done pretty well the past week since announcing that it will be taken private.

But some of the other casino stocks have not been doing so well, including Wynn Resorts ( WYNN) and Las Vegas Sands ( LVS).

My short idea for this week is Las Vegas Sands -- and here's why. The company is set to open the Venetian Macau mega-resort on Aug. 28. You'd think the stock would be catching some bids in anticipation of this event, but it's not.

Let's take a look.


Las Vegas Sands (LVS) -- Weekly


This weekly chart shows how Las Vegas Sands peaked in early 2007. Since that time, it's fallen back to test the early November breakout above $75. The established concept of "prior resistance becomes current support" rings true here. As long as the prior resistance at $75 continues to attract buying interest from those who missed last year's move, then all is well. But if the stock falls below support, I think it could just as easily fall another $15 to test $60.

So a prudent short entry would be at around $74.90, with a stop just above $80 -- say, around $80.10. And an initial target would be $60. That's roughly a 1:3 risk/reward profile, which is acceptable to me.

Las Vegas Sands shares closed at $76.06 Wednesday.

Updates on Previous Picks

  • Assisted Living Concepts (ALC): The short at $11.60 is starting to pay off, with shares closing at $10.97 Wednesday. The target remains at $9.50, but lower the stop from $11.90 down to $11.50.
  • Arrow Electronics (ARW): The entry at $40.90 was a bit early, but this short is working. The current stop is at $42.10, but lower that now to $41.75. Shares closed at $39.77 Wednesday.
  • Continental Airlines (CAL): The short entry at $33.40 was a bit premature, and the stock is now snapping back to test prior support. But the stop is at $36.50, and that's where it stays. Shares closed at $34.44 Wednesday.
  • Goldcorp (GG): This short idea was entered June 18 with a cost basis of $25, and the stock closed at $24.12 Wednesday. The current buy-stop is $26.05. But it's time to lower that to $25.15 to protect capital.
  • Lam Research (LRCX): This one hit the stop at $54.05 last Friday and was closed out.
  • Mattel (MAT): This short idea is getting close to the target of $25, but there is no reason to exit early. So lower the target to $23.85, and drop the buy-stop from $27.40 down to $26.10. Shares closed at $25.47 Wednesday.

At the time of publication, Fitzpatrick held no positions in the stocks mentioned, although holdings can change at any time.

Dan Fitzpatrick is the publisher of StockMarketMentor.com, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback; click here to send him an email.

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