Trade Autopsy: Las Vegas Sands (LVS)

12/07/2010 12:01 am EST


Steven Spencer

Partner, SMB Capital

Before I break down the various trades that I thought offered good risk/reward on December 2 for LVS, I would like to discuss December 1. Las Vegas Sands (LVS) gapped higher on December 1 with the large gap up in the market. It sold off in the morning and found support at the $51.15 level. The level was tested a second time around 12:30 pm right as I began my morning video. LVS was showing relative weakness to the market, so when we received a question about buying it if it touched support again, I recommended not getting long. I also made a mental note to look at it the next day as a potential short if it traded below the $51.15 level.

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On December 2, as the market opened, LVS was directionless for the first 15 minutes. Then at 9:46 am, there was an increase in selling pressure, which caused my price alert to trigger at $51.15. This was the beginning of the fun!

  1. The first trade opportunity was a short sale based on a breach of the prior day’s support area. My trading style dictates to initiate a small position as soon as the prior day’s support is breached. If the stock continues to hold below the prior day’s support, then I will add to the position. In this instance, LVS did traders the favor of showing them a 70-cent down move on heavy volume so they could have confidence in shorting the retracement to prior support. If you zoom in on the two-minute chart, you can clearly see a large seller with an intermediate sell algorithm dumping LVS all the way down to $49.54. It is clear when the sell program tapers off at 11:30 am as it is forming a triple bottom.

  2. The second trade which was a long triggered at 11:38 am on a large increase in volume as LVS was clearly breaking out of its downtrend. My trigger buy price was above $49.90, which was the price it failed at after the second test of support. Confirmation of the trade came quickly as there was a surge in volume and it traded above $50.05, which had been the retracement high off the initial low of $49.54. The large surge in volume in conjunction with the disappearance of the methodical seller led me to believe shorting opportunities were probably done for the day. Little did I know that the initial seller in the morning was someone exiting due to advance knowledge of the news from Macau.

  3. This trade is not one I was interested in making. Yes, LVS did fail to hold above the $51.15 resistance, but the volume on the reversal from $49.50 was so huge that I thought it was more likely to find support on a pullback from $51.25 and then continue higher. But it is clear from viewing the two-minute chart that after LVS pulled back to $50.78, the next significant move was lower and represented a shift in momentum to the downside. Anyone who took this short was in a great position to capitalize on the panic down move that began when the Macau news hit the wires.

  4. At 12:26 pm, when the volume exploded on the Macau release, LVS was a momentum short below $49.50. Once the momentum slowed and began to reverse in the $48.60’s, it was time to cover half the position. My preference would be to add back the shares covered plus some extra on the drop of the prior intraday low of $48.62. Once the measured move was completed around $47.30, I would take off the majority of the position. Also, there was a crescendo of volume that further confirmed it was a good time to cover the position.

  5. As LVS began to tighten up after 1:00 pm, a 60-cent range was established between $47.50 and $48.10. After six bars of consolidation on the five-minute chart, LVS breached $48.10, signaling another change in momentum and offering a trade on the long side. You can see that this entry initially failed, dropping LVS all the way to $47.90 prior to beginning its next uptrend. I think of all the trades offered so far, this is the one where some traders would have been stopped out, depending on where they were to place their stops. I think in this instance, an appropriate stop was $47.89 or $47.79. My target for this trade would have been $49.60 based on the morning low. I also would have taken some off at $49.07 as this was the retracement high of the panic low.

  6. The final trade opportunity was when LVS began trading sideways in the final hour. This is another trade that I wasn’t interested in making, but I could see why others might have been. After failing at $50, some would argue that LVS made a lower high at $49.83 and could possibly reverse again. My feeling was that it rallied almost three points from the low at this point and there clearly was a buyer at $49.35, so I thought it was more likely to touch $50 again. But when the buyer dropped at 3:45 pm, there was a legitimate momentum short opportunity, which ended up offering about 50 cents of profit potential.
By Steven Spencer, trader, SMB Capital
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