I am looking for a short entry to LVMUY based on the double top pattern.
Louis Vuitton Moët Hennessy (LVMH) presents with two conflicting chart patterns, which are drawn using @LonesomeTheBlue's excellent HPP indicator at the default settings. Based on the statistics provided by that same indicator the Anti-Gartley is the slightly more compelling one with an 80% win rate (4/5) and a profit factor of 23.44, while the double top has a 71% win rate (5/7) and a profit factor of 12.48. So, why then do I want to go short?
For three reasons:
For the purpose of this idea, my price target will be the level suggested by @LonesomeTheBlue's HPP indicator, i.e. 154.32. Stop loss will be around 180, roughly corresponding to the 23.6% retracement level of the run from September 27, 2022, to April 21, 2023.
Louis Vuitton Moët Hennessy (LVMH) presents with two conflicting chart patterns, which are drawn using @LonesomeTheBlue's excellent HPP indicator at the default settings. Based on the statistics provided by that same indicator the Anti-Gartley is the slightly more compelling one with an 80% win rate (4/5) and a profit factor of 23.44, while the double top has a 71% win rate (5/7) and a profit factor of 12.48. So, why then do I want to go short?
For three reasons:
- Per LVMH's last quarterly earnings release, the company derives 34% of its revenue from Asia ex-Japan. The bulk of that presumably from China. Given the widely reported problems within the Chinese economy, I believe that many Chinese consumers will choose to avoid spending on the conspicuous luxury products that LVMH is famous for.
- LVMH has a very close correlation (81%, over the trailing 2 years) with FEZ, the SPDR Euro Stoxx 50 ETF. This ETF has outperformed the US market in 2022 and through mid-July, 2023, but has since started to lose traction.
- I expect that the dollar strength of the recent weeks will continue, unless tomorrow's speech by chairman Powell offers clear indications that the Fed hiking cycle is concluded. This dollar strength is ultimately bearish for US listed equities. This point also hints at one reason I might choose not to activate the trade. If the reaction to the Jackson Hole speech tomorrow is very bullish, I may reassess.
For the purpose of this idea, my price target will be the level suggested by @LonesomeTheBlue's HPP indicator, i.e. 154.32. Stop loss will be around 180, roughly corresponding to the 23.6% retracement level of the run from September 27, 2022, to April 21, 2023.
Trade active:
Powell speech was hum-drum. No clear end to the hiking cycle. No serious concern about the stresses that are emerging in the US and global economy. It's on.
Comment:
The beating of China-centric luxury retailer LVMH continues, That said, The stock has now reached the March low. Country Garden has been able to get a reprieve from its domestic creditors, and has made the past-due interest payment on its USD bonds, narrowly avoiding default.
A bounce is quite possible here. Taking partial profits is a prudent move.
A bounce is quite possible here. Taking partial profits is a prudent move.
Trade closed: target reached:
Technically today's low is 3¢ above my target, but close enough. I am closing this out.
To cut the long story short: I believe the market for $10k hand bags and $500 champagne bottles in China is going to suffer. And I don't see it take off anywhere else, either. Staying short.