Las Vegas Sands (LVS)
(11/20/07)

Some may recall we made a series of long plays on LVS in 2006.  While these were profitable, persistent shorting always challenged rallies, until finally shorts were driven out in June, the stock nearly doubled in value, and the PE shot to over 200.  Despite the high price and the enormously high multiples that are ultimately unsustainable, shorts are now nowhere to be found.  The current short interest ratio is below 2.0, which means the amount of short interest in LVS is negligible.  Such is the contrarian nature of market sentiment.  After reaching 148 on Oct. 29 in what has all the appearances of a bubble, the stock fell 29%, and subsequently bounced.  The depth of the decline tends to argue for at least an intermediate term top, and the current bounce is ideally offering an opportunity to position short for the next leg down.

The decline from 148 to 105 on Nov. 8 does subdivide internally as 9-waves, so it's impulsive, and for now we're labeling it as Wave A down.  The bounce, presumably Wave B, has thus far retraced less than 38.2% of the correction, which is the expected minimum.   We therefore leave open the possibility that this might still happen, and it would occur with a move to 121.  Since the first leg of the decline suggests the overall corrective pattern should develop as a zigzag, we also allow for the possibility that the stock could also move towards the 50% and 62% retracements, which lie at 126 and 131, respectively.  For now, we'd suggest using a clean break below 105 before committing, unless a better opportunity presents itself sooner, which we'll be watching for.   The range of support areas is indicated, with the ideal target a retracement back to the previous Wave (4) area between 71 and 79.   87 is also a key support level to be watched.

We usually prefer to use Puts for short plays.  Depending on when the break comes, pricing will be affected.  I'd still suggest nothing sooner than the March 2008 contracts.  The March 08 $100 Put (symbol LVSOT) was selling for $8.70, with the Delta in the mid 0.30s.  Nowadays, deep ITM Puts offer the stronger Delta, but high volatility is making up the difference in Put appreciation.  This particular Put priced as high $18 during the first leg down, just on the volatility.  If we're right, it should do considerably better.

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