A short term trade looks to be developing in Macau. We’ve been falling since May and we seem to have found a plateau, a short term bottom. We may see a brief bounce from here but it is unlikely to last for more than a few months at most. Major anticipated earnings are on tap this week for Las Vegas Sands and Wynn, and Melco in early February. There may be a decent opportunity for short term traders here in these casino stocks, but longs should be prepared to cap profits at a predetermined hard target, get out quickly, and move on.

There are several reasons why we could see a tradable pop higher in Macau stocks in the short term. First, there are decent short term technicals. Volatility in the gaming sector has fallen significantly since October. The BJK gaming ETF has been pinging between support and resistance for nearly 4 months now, with strong resistance at $37 about to be tested for the fourth time. The first resistance zone at $33 was easily broken through and that led to a quick 10% rally. Break through strong resistance at $37 and the skies are clear until at least $38, with a decent chance we could see $40 if earnings come in above expectations. That’s a total potential 10% rally further up. Volume has leveled off since the beginning of the year so it seems that traders are either already positioned for earnings or are waiting for them to be released to make their moves. I would guess that the smart money is already in, waiting for earnings to bump Macau higher and sell the news. Dumb money is probably waiting for good news to buy.

The 50-day moving average was broken through to the upside on January 7th and just started turning up again. RSI has held above 50 since the beginning of the year, sign of a possible short term trend change. On the weekly charts, RSI is now approaching 50 for the first time since Macau topped in May. We are also up 4 weeks in a row for the first time since September 2017. BJK has now 18% from lows, which means that if we move 2% higher from here, we’ll start seeing those superficial “Macau is Back in a Bull Market!” headlines, sucking in more retail money. Basically, most of the major technical indicators are showing that a big short term move could be imminent, and earnings will likely be the trigger.

Besides technicals favoring a bump higher, we have the added plus of expectations already being pretty low. Sanford C. Bernstein came out with a forecast of an 8-12% dip in gross gaming revenue this month. Morningstar Asia came out with a similar forecast calling for a contraction this year. We also have another nominal face-saving crackdown out of Reuters on a $4.42 billion illicit ATM ring where a “criminal gang” was caught for the horrible crime of bringing cash machines over to Macau from the mainland so gamblers could, you know, gamble. News like this dampens sentiment and brings expectations lower than otherwise without actually making a dent in anything, any more than a drug bust makes a dent in the illegal drug industry. All it does is subsidize the lawbreakers that haven’t been caught yet, probably because they can afford higher bribes, and inch up their profit margins. Keep in mind the $4.42 billion isn’t subtracted from Macau GGR. It’s subtracted from the books of the groups that operated the ATMs before it’s even counted as Macau GGR.