A number of economic reports had traders a bit uncertain today.  But in the end, the bears took the prize in what appears to be a failure of this week’s range breakout.

Here is a quick survey of the macro news:

• Existing Home Sales Rise (WSJ). Existing-home sales increased to an annual rate of 4.13 million, the National Association of Realtors said Thursday.

• Leading Economic Index (LEI) for US Rises (Reuters). The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.3 percent in August to 110.2, following a 0.1 percent increase in July, and a 0.2 percent decline in June.

• Weekly Jobless Claims Rise Unexpectedly (Reuters). New claims for unemployment benefits rose unexpectedly last week, government data showed on Thursday, highlighting continued labor market weakness.

Traders took their time figuring out how to react, but the late day swoon looks fairly ominous.  More importantly, the action sets up some appealing opportunities in our “short US consumer” theme…

Casinos Feel the Pinch

Ok, I realize that many casino operators have been trading higher over the last several weeks…  A few weeks of positive jobless claim numbers have given the bulls a bit of confidence, and the emerging markets story for a few firms with operations in Macau helps to drive the optimism.

But today, we may be seeing the first indications of weakness for the stalwarts, and continuation on the truly bombed out names…

After breaking to a new recovery high earlier in the week, Wynn Resorts Ltd. (WYNN) was unable to maintain the momentum.  A failed breakout can be a catalyst for momentum traders to exit, and with a PE north of 50 and significant debt, fundamental investors may also begin to have reservation – regardless of the optimistic growth assumption.

Las Vegas Sands (LVS) has been a Teflon stock for several months now (nothing sticks to it), but the last two trading days have my attention.

The stock broke out of a tight consolidation on strong volume Wednesday.  But then on Thursday, it reversed course on even stronger volume closing at the low of the day.  If it breaks below the tight range, we could see the shorts jump back on this wagon and send the stock sharply lower.

You don’t have to be a “permabear” to like this short setup.  Even a trade down to the high 20′s would represent a good reward considering the tight stop that would be warranted on a breakdown trade.

LVS is trading at 45 times this year’s earnings with 51% earnings growth expected for next year.  So basically it’s expensive and if the growth stalls, it will take on water.  The company is saddled with enough debt to make any stall in revenue a big deal.

The real dog of the group is MGM Resorts International (MGM) – The company is expected to lose $1.15 per share this year and another 68 cents next year.  Revenue has NOT picked up this summer and the debt to equity ratio is 335%!

I’m interested in shorting a break of $10.00 provided the rest of the group continues to point to a weakening environment.

Homebuilders Hurt

Sellers took the last five weeks off when it comes to pushing the homebuilders lower.  But although the recent data points to a small increase in real estate activity, it is not likely to be enough to continue to lift the group.

If unemployment becomes more of an issue (as the fickle weekly number released this morning suggests) the residential real estate market will continue to languish and property buyers will be few and far between.

My favorite short in the group is KB Homes (KBH) which continues to post losses and may face capital issues.  The debt to equity level is 257% and most of the equity is land (which is tough to value and even tougher to sell)

I’m also watching MDC Holdings (MDC) which broke down after kissing the 200 EMA a couple of days ago.

The action is hot and the bulls are threatening…  Play it tight into the end of the week!
MM