This One’s for Bruce!

One of my dear clients who had a personality that had its own zip code (and sadly is no longer with us) used to call me up regularly and remind me there was a ton of money to be made in “sinner” stocks and to make sure he owned a lot. To him, “sinner” stocks were those companies providing “booze”, “gambling” and “cigarettes”. He also mentioned “prostitution” but I never had any luck finding a public company to fit that bill for him.

Today’s post is about a Melco Resorts and Entertainment, MLCO one of Asia’s biggest gambling/entertainment companies serving Hong Kong, Macao and the Philippines.  As you can see in the chart below, after forming a double top with divergent momentum back in early 2014, its stock was relegated to the unloved investment bin by traders as it fell more than 70% (peak to trough) over the next two years. But since that time it has had a chance to form a very nice, wide base indicating a relief in selling pressure. Price is now above a rising 200 day moving average and sits just under a major resistance zone, while momentum is in the bullish zone.  IF this breaks out to the upside, it looks as if it could have a long way to run, assuming the broader market cooperates. I have some reservation as It is very extended from its 200 day moving average and as such I would love to see it pullback/consolidate soon. The fact price sits just under a major resistance zone makes this a logical place for it to rest. Either way, I find this a compelling opportunity and would be looking to enter it on a “confirmed” move above major resistance.

If you are particular in the types of investments you own, “sinner” stocks like MLCO may not pass the screen.  If not, this one’s for you Bruce (R.I.P).

Blockbuster or a Flop?

US bank stocks went on a tear after the Trump election. The promise of a pro-growth agenda combined with higher rates the FED was proclaiming set up an ideal environment for them to prosper and roll in the dough. Unfortunately, the promises and proclamations ran into political reality and as such that ideal environment is becoming a distant memory.  As you can see in my chart of the US bank sector ETF, XLF, below, banks ripped higher, topped and are close to breaking down out of a very symmetrical and almost ideal head and shoulders (topping) pattern. A breakdown below the blue horizontal neckline and hold, points to a downside target at, T1.  Since there is little support at that level, it is likely if T1 is hit, they continue lower down to the T2 zone as that is a level of major support.

On the flip side, some European banks which, many were on the precipice of default and setting up the potential for another 2008 banking-type crisis, look exactly like the US banks.  Except upside down.  A good example of this is represented in the chart of Deutsche Bank, DB, below. Like their US brothers, they have not broken out of their almost symmetrically ideal (inverse) head and shoulders (bottoming) pattern. A break and hold above the blue horizontal neckline points to an upside target at T1, some 40% higher. If it really has some legs and slices right through T1, the T2 zone represents a level of major resistance where it will likely struggle as supply is likely plentiful. I find this situation unique and interesting as investors are potentially setting their sights on Europe.  If so, this would be a major fundamental shift.

Patterns in development are nothing but a potential setup for a future investment.  Until either one of these confirms they should be viewed only as you would a trailer to an upcoming movie. Something to grab your interest but sometimes turn out to be the highlights of a studio flop.

$60 Trillion of World Debt

I saw this chart posted by visualcapitalist.com and had to forward it along. While it has little to do with investing, it is an obsession of mine. I am a firm believer that one day we will have to face the piper and have our day of reckoning.  While debt isn’t evil, the level of debt we (the US) have almost fits that description. But the interesting thing is, and maybe provides some solace, is looking across the global landscape it appears as if there are a few countries/regions that may have to face the piper before we do. Ultimately though, our day will come.

As you can see the chart breaks down $59.7 trillion of world debt by country, as well as highlights each country’s debt-to-GDP ratio using color. The data comes from the IMF and only covers public government debt. It excludes the debt of country’s citizens and businesses, as well as unfunded liabilities which are not yet technically incurred yet. All figures are based in USDollars.

The numbers that stand out the most, especially when comparing to the previous world economy graphic:

• The United States constitutes 23.3% of the world economy but 29.1% of world debt. It’s debt-to-GDP ratio is 103.4% using IMF figures.
• Japan makes up only 6.18% of total economic production, but has amounted 19.99% of global debt.
• China, the world’s second largest economy (and largest by other measures), accounts for 13.9% of production. They only have 6.25% of world debt and a debt-to-GDP ratio of 39.4%.
• 7 of the 15 countries with the most total debt are European. Together, excluding Russia, the European continent holds over 26% of total world debt.
• Combining the debt of the United States, Japan, and Europe together accounts for 75% of total global debt.  Yet, combining their population they account for less than 25% of the world’s total humans

Wow, That was Fast!

Back on March 1st I wrote about the inverse head and shoulders pattern developing setting the stage for a big rally in Beef prices in “It’s What’s for Dinner”.  At the time cattle future prices were hovering around $55/contract and the pattern’s upside target was some 45% higher at $80.  I am happy to say that last week that target was hit. While it is massively overbought, there is no divergence and as such looks like it may want to make another push higher after the current pullback is complete. Anyone who followed the call should consider taking at least partial profits. 

It’s important to remember pattern opportunities don’t always work out this well and when they do, it is rare they move this quickly.

Change

It is not necessary to change. Survival is not mandatory. ~W. Edwards Deming

The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails. - William Arthur Ward
 

While one could quarrel with whether Amazon is a technology company or a retailer, it would be very difficult to argue the investment world has not dramatically changed.