logo

These China-sensitive stocks could be a 'value trap'

VIDEO3:4903:49
Casino stocks wiped out, but one name could bounce back

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