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| Macau, the gambling mecca of the Orient |
It seems a little crazy that just Friday, there was not a buyer in sight, and now only two days later, not a seller can be found. So goes today’s market. Some may be upset that they lightened up on Friday’s big down move… Don’t be, says Scott Redler of T3Live.com (reporting from jury duty). You never know what days like that will lead to, and being prudent and managing risk is what active trading is all about.
Active traders might not catch every step higher, but you will also avoid much of the carnage from the ‘elevator down’ days, too. The markets are like the NCAA tournament: survive and advance. Right now the S&P penetrated way too far into Friday’s down bar for the bears to have any control left. It’s back to business as usual for this rally as many stocks are developing constructive patterns once more. Baidu.com, Inc. (BIDU) continues to hold higher after an 8% post-earnings gap up.
Casinos Poised for Another Run
The casino group has been one of the hottest sectors over the past two years during the economic recovery. After strong runs, they have mainly stagnated over the past several months. Active traders have been frustrated of late trying to catch a meaningful bounce, but a catalyst just might come Thursday with the earnings report from Las Vegas Sands Corp (LVS).
LVS has been an unstoppable force since hitting lows of under $2 in March 2009, but was pegged back a notch late last year when two new land grants in Macau were turned down. While the city Las Vegas has seen a tepid revival, it has been Macau that has driven growth for the large casino companies. CLSA Ltd. last week upgraded growth estimates for 2011 Macau casino revenue to 30% from 20%, after nearly 58% growth in 2010.
With building in Macau slowing down, more of the Macau revenues will begin to flow into the bottom line for LVS, Wynn Resorts Limited (WYNN), and, to a lesser extent, MGM Resorts International (MGM). Today, it was reported that January Macau revenue jumped 33% (to $2.3B) from the year ago period, with surging demand from VIP and mass-market gamblers from mainland China. LVS still has two new developments likely to open later this year on the Cotai Strip in Macau. The Cotai strip could do to the Macau Peninsula what the Vegas strip did to Downtown Las Vegas many years ago. LVS has also opened a successful casino in Singapore (Marina Bay Sands).
Due to their greater exposure to Macau, our favorites in the group are LVS and WYNN. LVS has bounced off the $44 area twice now, and is now surging through $48 this morning. We don’t see any reason why LVS would not meet expectations in Thursday’s earnings report, and feel there is the potential for a solid beat. LVS has room to run to highs above $55.
While LVS has more irons in the fire in Macau, WYNN still continues to be the true group leader. Goldman analysts raised the earnings per share estimates for WYNN in a research note to investors Monday, while Bank of America Merril Lynch analysts raised their price target to $140 from $120 last week. WYNN reports earnings on February 25.
Whereas LVS has been in a long-term wedge pattern, WYNN is basing near the highs. A break above the recent high of $120 would spark a measured move to the B of A/Merril price target of $140. Isn’t it great when technicals and fundamental agree?
Banks Waking Up
After a mixed bag of earnings from the banking sector this season, it felt like the group didn’t know which way to go. The banks with strong earnings like JP Morgan Chase & Co. (JPM) and Wells Fargo Company (WFC) have just been hanging out in the upper end of the range, while the ones with poor reports, like Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) have been basing in lower ranges.
Now, it looks like the banks are starting to break out of those bases in unison. Goldman held its lower pivot of $160-161 Friday and is now breaking through resistance at $165. Despite a disappointing earnings report, we still feel GS is the cream of the crop in the banking sector and the best bet going forward.
While GS may still be the premier bank, their lead is shrinking in our eyes. Blessed with an iconic leader in Jamie Dimon, JP Morgan is looking to change the status quo a bit. JPM handily beat estimates and is even planning to restore a $1/share dividend last seen a decade ago. Technically, JPM is leading the pack right now and looks like it wants to break above $45.75 today.
Going forward, JPM and GS should be the banks at the top of your wish-list.
Oil On Fire
The oil group has been in focus due to the anti-government protests in Egypt. The sector has gotten a boost with fears about supply disruption through the Suez canal, adding fuel to a group that already had bullish prospects for 2011.
Today, oil and energy stocks continue to be strong. Our favorite in group Schlumberger Limited (SLB) continues to push higher. Others we like in the sector are also surging today, including Devon Energy Corporation (DVN), Halliburton Company (HAL) and Alpha Natural Resources, Inc. (ANR).
The other commodity sectors are also performing well, as fertilizers like The Mosaic Company (MOS) and PotashCorp./Saskatchewan (POT) continue to push higher after the recent Cargill-induced sell-off.
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The resilient market charges back to highs, and patient investors are being rewarded. But, again, if you take an active trading approach and took risk off during Friday’s hard sell-off, you did the right thing. The moment you stop obeying your personal rules becomes a slippery slope. There are plenty of sectors still with buyable set-ups and calculated risk parameters, even if the ‘perfect price’ is not there.
*DISCLOSURE: Scott has no positions. John Darsie is long GS, LVS, SLB, POT, MOS, BIDU.
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