LVS Watch

Las Vegas Sands Corp. (LVS) is a winner on earnings day and a loser at the trading table. The gaming company, with global exposure, beat analysts' forecasts by a good 10% when it announced earnings in February. But it was downgraded today, in part because of an investigation by the SEC of its Macau operation in China.

The idea behind the downgrade is that LVS may be doing OK, but that's not what traders' will be looking at for awhile.

The price-channel chart reflects the pessimism. LVS exited bull phase on Dec. 14, and entered bear phase on March 9.

sym	chan	adx	traj	psar
LVS

In truth, despite the happy earnings surprise, LVS is anything but a growth stock, with a return on equity of a miserable 6.75%, and a debt equal to nearly 50% above equity (a debt/equity ratio of 1.4x).

So LVS is well deserving of bear phase.

sym	bday	blevel	stop	2-day?
LVS	mar9	$41.87	$43.10

The present price slide began from a swing peak set on Jan. 11. After an initial fall, the stock traded sideways between $43 and $51, with the occasional small-scale breakout. The most recent swing high in the stair-step down was on Feb. 28.

The stock is now trading at a sideways pause set during the run up back in October 2010. This area of congestion provides some support, as does the 200-day moving average.

Because of that downside resistance, I structured my position as a bear call spread, which gains value as the April options expiration nears. Even if the stock doesn't decline, with a vetical spread I can still profit.

However, the lower line of the 55-day price channel is declining sharply, and the average directional index is rising sharply toward the 30 level. So, there's clearly some market push in favor of further decline.

Reversal Levels

• $55.47, +44.1% (jan. swing high)
• $46.98, +22.1% (feb. swing high)
• $38.49 --- You are here.
• $38.00, -1.3% (today's low, so far)
• $37.66, -2.2% (200-day moving average)

Bottom line: LVS has been a perennial play for me, both to the bull side and the bear. Because of its China exposure and the nature of gaming, which is far from being a necessity in people's lives, it has enough volatility to be an attractive trade.

Longer term, I'm fairly bullish on LVS. The American economy is improving, which will be good for the U.S. properties. China's economy is improving, which will be good for the Macau operation.

But that's a story-stock narrative. I trade by the charts, the charts say bear phase, and that's how I've traded today.

Key

• chan: Channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
• adx: Average direction index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 30 and up but below 40, magenta (light purple) for 20 and up but below 30, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, purple for sunset on the horizon and brown for the earth.)
• traj: Trajectory of the ADX, green for strengthening, red for weakening or yellow for unchanging. Note that if the adx column is orange and the trajectory column is red, then the position must be closed.
• psar: The parabolic sar, either green for bullish or red for bearish.
• bday: Breakout day, the day the price broke through the upper or lower 55-day price line.
• blevel: Breakout level, the price level of the line that was broken through.
• stop: The current stop/loss price. Early in a bull or bear phase, this will be 5¢ below the low or above the high, respectively, on breakout day.
• 2-day?: Marked with an "✔" if the two-day rule is in effect. Under the rule, if the price closes below the breakout level on each of the two days following breakout day, then the position must be exited.

About channel analysis

Read a detailed explanation of my channel analysis method, including trading rules.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.


No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.