China-sensitive Casino stocks could be a ‘value trap,’ says trader

Investors were all-in on casino stocks Wednesday.

The rebound rally follows on from a major sell-off a day earlier triggered by a sharp drop in Macao gaming revenue in August. MGM, Wynn, Melco and Las Vegas Sands all came under pressure as protests in nearby Hong Kong and a slowing Chinese economy took a toll.

One market watcher says these China-exposed stocks look like a “value trap” here.

“You’d have better luck at the craps table because trying to pick a bottom in these stocks is exactly that, it’s gambling,” said Quint Tatro, president of Joule Financial, Tuesday on CNBC’s “Trading Nation. ” “These are going to be high beta names tied exactly to the trade discussions and the worsening economy that’s going on in China right now as a result of that.”

Macao-exposed MGM, Wynn, Melco and Las Vegas Sands have underperformed the market this quarter as U.S.-China trade tensions have intensified. MGM and Melco have fallen nearly 5%, Las Vegas Sands more than 7% and Wynn 13%.

“It’s a value trap at this juncture and again going out and trying to pick a bottom in these names is very dangerous,” Tatro said. “Someone can wait until news breaks and we really have some [trade] resolution and then wait to see these earnings really turn around.”

The stock charts paint an ugly picture, too, said Todd Gordon, founder of TradingAnalysis.com.

“Take a look at Wynn to start,” Gordon said on “Trading Nation.” There’s “a big old nasty potential head and shoulders here. … That’s very, very scary. If we see a global sell-off, get through that, you can be sure stop losses are going to go off.”

“Next up we’ll look at Las Vegas and this is a worse chart than Wynn. You can see we have not recaptured the pre-credit crisis lows. Again, same kind of potential pattern here. A head and shoulders holding on for dear life above trend line support,” said Gordon.

A head and shoulders pattern is formed when a stock makes a high, a higher high, and then a lower high. It typically suggests a bullish trend is turning bearish.

Disclaimer