macau casino stocks recent rally may see a correction 1837882016

Macau casino stocks rallied by 30% to 50% from their respective July 2016 lows as gaming revenue soared by 7.4% y/y in September after a gain of 1.1% y/y seen in August. These set of consecutive months of revenue increase came after a 26-month of consecutive decline.

However from a technical analysis perspective, the current multi-month rally in these casino stocks have appeared to be overstretched where they face a risk of a mean reversion decline. Let’s us take a look at one of the major players, Galaxy Entertainment in greater detail from a technical analysis perspective.

Galaxy Entertainment (HKG: 0027) – Bearish signals below 34.50 resistance

(Click to enlarge chart)

Key elements

• The recent intermediate term rally of 50% from the July 2016 low of 22.00 is now coming to a significant resistance at 34.50.
• The aforementioned resistance is defined by a confluence of elements. Firstly, it is the upper boundary of an ascending range (depicted in orange in place since 30 September 2015 low). Secondly, the upper boundary of the “Ascending Wedge” (depicted in pink). Thirdly, a Fibonacci cluster.
• Bearish exhaustion signals have emerged right below the 34.50 significant resistance. Current price action has traced on a bearish “Ascending Wedge” configuration in place since 17 October 2016 low, in conjunction the daily RSI oscillator has displayed a bearish divergence signal which indicates that upside momentum of price action has started to wane.  Also, the up move seen in price action from 17 October 2016 low has been accompanied by declining volume.
• Significant supports now rests at 29.10 and 25.05/23.65

Key levels (1 to 3 months)

Pivot (key resistance): 34.50

Supports: 29.10 & 25.05/23.65

Next resistance: 43.46

Conclusion

Galaxy Entertainment is now right below a 34.50 pivotal resistance where technical elements are now advocating for a breather after its recent 50% rally. Risk of multi-month decline towards the supports of 29.10 follow by 25.05/23.65 within a long-term  ascending range configuration.

However, a clearance above the 34.50 pivotal resistance may invalidate the preferred bearish scenario for a further rally towards the next resistance at 43.46.

Charts are from eSignal

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