GAMBLING STOCKS LEAD XLY-- LAS VEGAS SANDS, MGM, AND WYNN GAIN -- STRONGER CHINESE STOCKS ARE HELPING -- AND CLOSE TIES TO MACAU
GAMBLING STOCKS LEAD XLY TO RECORD...Chart 1 shows the Consumer Discretionary SPDR (XLY) hitting a new record high yesterday. The XLY closed above a flat trendline drawn over its July/September highs to complete a bullish "ascending triangle" formation. Assuming it can hold on to that upside breakout through the rest of the week, that would make it the lastest sector ETF to establish a new record. A number of groups have been helping to lead it higher which include footwear, hotels, autos, recreational products, and toys. Our main focus today is on the strongest part of XLY. And that's gambling stocks.
DOW JONES GAMBLING INDEX IS XLY LEADER... Chart 2 shows the Dow Jones Gambling Index reaching the highest level in eighteen months after achieving a major bullish breakout earlier in the month. The gray line plots a relative strength ratio of that gambling index to the XLY; and shows that group leading the XLY higher since the start of October. Not only has the Gambling Index been the strongest performer in the XLY over the last three months; it also has the XLY's highest SCTR ranking of 97. We'll come back shortly to why that may be happening. But first a look at some of its individual stock leaders.
GAMBLING LEADERS INCLUDE LAS VEGAS SANDS, MGM AND WYNN... The three gambling charts below are shown in order of relative strength. Chart 3 shows Las Vegas Sands (LVS) recently clearing its April high to achieve an upside breakout. Chart 4 shows MGM Resorts Intl. (MGM) also achieving an upside breakout to turn its trend higher. The laggard in the group has been Wynn Resorts (WYNN). Chart 5, however, shows that gaming stock jumping sharply today to reach the highest level in five months (and making it one of today's XLY biggest percentage gainers) . It too appears to be bottoming.
GAMBLING STOCKS ARE TIED TO CHINA...Chart 6 shows a close correlation between the DJ Gambling Index (green line) and China Large-Cap iShares (red line) over the last two years. They fell together throughout 2018 before bottoming together at the end of that year; They turned up together this August (see arrows), and are now rising together. The red circle shows the FXI rising today to the highest close in eight months, and nearing a test of its April high. That coincides pretty closely to the upside breakout in gambling stocks (green circle). Their close visual correlation is confirmed by the green line in the lower box which shows a 60-day Correlation Coefficient of .77. Which brings us to the obvious question about why the two markets are closely linked.
ALL THREE STOCKS HAVE CASINOS IN MACAU... Macau, which is part of China, is the world's biggest gambling hub. And all three stocks shown above operate casinos there. Gaming stocks started rallying during August on signs of increased revenue in Macau. Fears that Hong Kong unrest might hurt Macau traffic have also diminished over the last couple of months. As have trade tensions between the U.S. and China. So we can add gambling stocks to groups that are benefiting from stronger Chinese stocks.
