The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

THE BUBBLE POPS: MGM

As I flew back to New York from Asia in October 2007, I learned that the man in the seat next to me was a fundamental hedge fund analyst. He told me that he specialized in gaming stocks, and I asked him which gaming company had the best fundamentals. He stated that without a shadow of doubt it was MGM.

Both of us were returning from Macau, where MGM had recently unveiled the Venetian, the largest casino in the world. My seatmate said that the huge public hall I saw on the ground floor was no more than 40% of the casino—higher up were the VIP levels, culminating in something he called VIP-VIP. One had to deposit a million Hong Kong dollars—about $130,000—to gain admission. He was hugely bullish and said that some of his clients held millions of shares of MGM.

Figure 9.5 MGM 2006-2008

MGM weekly with two moving averages and an Autoenvelope

MACD-Histogram and MACD Lines

Force Index—13-week EMA

I pulled out my laptop and opened an MGM chart—our conversation took place at a point marked with a diagonal blue arrow (Figure 9.5). I told my seatmate that with MGM near $100 the uptrend looked wonderful, but I would not buy it above value—above both moving averages. I’d wait for a pullback below value and get long there.

As I look at this chart today, I wonder where my eyes were. Mass bullishness has a way of infecting even sober analysts. As MGM began to ...