How should we be investing, given the current outbreak and spread of the coronavirus from China? During his "Mad Money" program Wednesday Jim Cramer took a look at past disease outbreaks to find out.
Investors should avoid the airlines and hotels, Cramer said, along with casinos with exposure to China, among them Las Vegas Sands (LVS) , Wynn Resorts (WYNN) and MGM Resorts (MGM) . He would also steer clear of the cruise lines and any tourist-dependent retailers.
Let's put on a mask and check out these three casino stocks.
In this daily bar chart bar chart of LVS, below, we can see a gap to the downside following a strong rally from August. Trading volume increased on the down gap and the On-Balance-Volume (OBV) line turned lower, telling us that investors are voting with their feet. The Moving Average Convergence Divergence (MACD) oscillator also crossed to the downside for a take profits sell signal. The warning signs are there.
In this Point and Figure chart of LVS, below, we used daily price data to get an idea on the potential for further weakness. The chart still shows a potential upside price target but chart support is not visible until we reach the $63.50 area.
Looking at a chart of WYNN, below, we can see a similar setup on the chart. Prices made a strong rally from October and then made a sharp gap to the downside as traders reacted to the news from China. Trading volume spiked up and the OBV line turned down. The MACD oscillator crossed to the downside. A pullback on light volume is typically not a problem, but with WYNN we can see that traders have left the casino.
In this daily Point and Figure chart of WYNN, below, we can see that the software is already projecting a potential downside price target in the $126 area. This area is likely to act as a support zone.
MGM made a quick reversal from new high to sharply lower, as seen in the chart below. The rally from early October has not been as strong as LVS and WYNN, but the downward reaction has been equally dramatic. Volume swelled and the OBV line turned down even though the gap was small. The MACD oscillator was already in a take profits mode unlike LVS and WYNN so the indicator just moved closer to the zero line.
In this Point and Figure chart of MGM, below, we added the volume by price data to suggest where support could develop. MGM could decline to around $28 or so before support develops.
Bottom line strategy: The charts of LVS, WYNN and MGM all show the potential for further price declines. We don't know how deep and how long a setback will run, so the prudent course of action is to reduce your exposure until the dust settles.