The clock is ticking on Macau longs. The movement in Macau stocks since the beginning of April has been largely technically driven and it won’t last much longer.
A potential for a short term trade opportunity in Macau was pointed out in late January, and since then, the Macau proxy BJK ETF is up 6%. On BJK, I had said that breaking through strong resistance at $37 would mean skies are clear until at least $38, with a decent chance we 
could see $40 if earnings come in above expectations in late April. At this point, sitting at a $38.83 handle we’re close enough that scaling out for the next trade is probably the wisest move. You may miss the end of the move higher but in the scheme of things it doesn’t really matter, because things are likely to get pretty rough over the summer.
The “wynner” here if I may be punny is Wynn, which at the beginning of April gapped up through both its 50 and 200 day moving averages simultaneously, a classic bullish signal that sucks in all kinds of technical short term traders. This is the first time since 2017 that Wynn has broken above its 200DMA, so dumb money is probably piling in on the breakout. There has been so much buying that the 14 day relative strength index (RSI) has jumped to oversold from weak to overbought for the first time since the major 2016 bottom, excluding a brief anomalous surge in late January 2018. This is causing sentiment to rise to bullish extremes, sucking in more short term traders looking for quick profits.
The situation now is the opposite of what it was in January, when Macau sentiment was bearish and analysts were expecting bad numbers. Sanford C. Bernstein had been forecasting an 8-12% dip in gross gaming revenue for the month, and it came out down only 5%. Now the expectations of a resolution of the US trade war with China are making traders bullish again, which could be setting up for a sell the news type of event when Trump and Xi finally announce that a “deal has been made”. There is no reason for them to announce this any time soon though, that is until both economies are clearly in trouble again. Save the big ammunition for later, as Trump is fully aware that his chances of reelection depend on the “big fat ugly bubble” in his own words being continually inflated. So there is little chance that a deal will actually be announced until the global economy is already in serious trouble, and at that point the announcement of a piece of paper isn’t going to do much.
If you’re holding onto Wynn shares trying to ride the wave and the news out today from Bloomberg that Wynn Resorts is in discussions to buy Crown, it would be a good idea to protect your gains with puts. September puts at $120 are going for $5.20 right now, which is the level that Wynn rocketed off from at the beginning of April. If we are going to see any kind of collapse this summer across equity markets, it will most likely happen before September. For added safety take puts expiring in January 2020 for a slightly higher premium of $8.25, or do a mix.
Wynn could break lower below $100 again by then and those puts would be worth $20.00 or more. After liquidating Wynn positions, hanging on to the puts would be a good idea, too. There is also a chance that a Crown acquisition could bring Wynn down, as often the firm making the acquisition takes a hit. It’s hard to tell exactly how traders will react to it though in the short term if it happens. These things could go either way. The larger point though is not the immediate reaction to any deal, but the trend into this coming summer.
By the middle of May we should have a pretty good idea of where we’re headed, but for now it doesn’t look good. The annual peak in monetary growth in the US banking system is about to hit around tax day, and from there we should be headed down. It’s hard to say how sharply down until the peak numbers and subsequent drop into May are in, but I’m not too optimistic. Since almost nobody who actively trades actually pays attention to the amount of money in the banking system available to buy stocks with (itself quite mindboggling) and instead they’re watching headlines about mostly meaningless trade deals that keep repeating themselves in the mainstream financial media over and over and over again, lots of big names could be caught with their financial pants down by fall.
Looking at the behavior of the broader market indexes, the S&P 500 has been stuck in a range since January 2018. That’s 15 months now without a strong move to break through to new highs. When you’re in a bubble you need consistent new highs in order for momentum to be sustained or you fall. This year looks to be shaping up very similarly to 2015 when the S&P 500 was range-bound for 17 months, January 2014 to July 2015, before it finally broke and triggered a more than 50% decline in Wynn shares that were already in a severe decline from about $103 to a low of $47 by September. I’m not forecasting that low, but if it happens, those $120 puts are going to be extremely valuable.
All said, start unwinding Macau positions over the next 2 to 3 weeks on up days or instead just pick up a few put options with a strike price at the breakout of $120 expiring in September and January. Interestingly, the January 2020 $120 puts were the highest traded for that expiration by far yesterday at 372 contracts, so maybe I’m not the only one bearish on Wynn on that time horizon. Those contracts should protect any gains you have if you took the short term Macau trade in January and could add to them substantially if things turn for the worse. And if the summer turns out OK and Wynn continues its trajectory up, then you’ll lose a bit on the contracts and enjoy a nice Wynn rally. Then you can comment here about how wrong I was.
