WHAT TO DO NOW: The Emerging Markets Timer continues to flash a buy signal, as the iShares Emerging Markets Fund (EEM) has been sprinting away from its moving averages. We are responding by returning NetEase (NTES) to a Buy rating and initiating a half position in BeiGene (BGNE).
Market Environment
There has been a lot of noise coming out of Washington, though very little actual policy change that would signal international investors that action needs to be taken. U.S. stock indexes are all out to (or near to) all-time highs and earnings season has had its usual mix of winners and losers, with the balance tipped in favor of winners. Investors are remarkably calm, apparently having decided to discount the turmoil and focus on the fundamentals, which are excellent. Fed chair Janet Yellen’s appearance before Congress reinforced the notion that the U.S. economy is healthy and strengthening and that rate hikes will follow at a measured rate. All in all, the atmosphere in the stock market seems benign.
The iShares Emerging Markets Fund (EEM) rally that began on December 23 took a two-week breather in late January and early February, but renewed its progress over the last seven trading sessions. EEM has now climbed to its highest level since June 2015, keeping our buy signal in fine shape.
Earnings season for emerging market stocks is heating up. Netease reported after the market closed on Wednesday, and rallied strongly today as investors approved of the numbers and guidance. Weibo is set to report its latest quarter on February 22, after the close. Vale will release results on February 23 before the open and ZTO Express will report on February 27 after the close. China Lodging will present its latest quarterly results on March 14 before the open. That leaves JD.com, Pampa Energia and BeiGene as our only holdings that haven’t either reported or set a date.
Markets opened higher, traded lower through the day and finished mixed after a five-day winning streak. At the close, the Dow was up 8 points (0.04%), the S&P 500 was down 2 points (0.09%) and the Nasdaq fell 5 points (0.09%). The iShares MSCI Emerging Markets ETF (EEM) finally took a breather, losing 0.14 points, a dip of 0.36%.
Recommended Stocks
Alibaba (BABA) looks a little stuck at this point, with support firm at 100 but resistance equally firm at 104. This means that the stock is holding on tightly to its gap-up gains following its January 24 earnings report, but hasn’t found the fuel for its next move. BABA is an institutional-grade stock, with great numbers, enough liquidity to attract big investors and excellent prospects. We will be patient as the stock consolidates. You can work at buying as close to 100 as possible. BUY.
BeiGene (BGNE) has been rallying since the middle of December, but we have been concerned that trading volume showed no evidence of interest from big investors. Since late January, the stock spent more than two weeks under resistance at 36, but the stock broke out above that resistance on Tuesday and continued to climb on Wednesday and Thursday, with a trading volume of 275,000 on February 14 and 264,000 shares on February 15. With the stock at new highs, these volume spikes are sufficient evidence for us to put the stock on Buy. We recommend taking a half position. BUY A HALF.
China Lodging Group’s (HTHT) rally Wednesday and today has pushed HTHT to its highest-ever close. (Hurrah!) China Lodging’s quarterly results are due out on March 14, so there’s plenty of time to get a position established. Volatility has been high, so a little patience should present an opportunity to get started on a pullback of a couple of points. We’ll stay on Buy. BUY.
JD.com (JD) is back to its highest level since January 2016, taking out its old 2016 resistance after a seven-week rally. The stock is rallying after building a base for more than four months (mid-August through December 2016) with resistance at 27. There’s no word on an earnings date, but since Q3 numbers came out on November 15, it will probably be sooner than later. With strong momentum, we’ll keep the stock rated Buy. BUY.
NetEase (NTES) made two surges higher in January, then flattened out for more than a week heading into its earnings release after the close on Wednesday. The company’s Q4 results absolutely crushed analysts’ estimates, with earnings coming in at $4.30 per share where analysts had expected $3.44 and revenue of $1.74 billion vs. estimates of $1.58 billion. NTES gapped up from its Wednesday close at 262 to finish just shy of 300. If you already own NTES, just hold on. We will put NTES back on Buy, with a recommendation to look for a pullback of a few points during the post-gap up volatility. We will fill the portfolio’s current one-third position to a full position. BUY.
It looks like Pampa Energia (PAM) is consolidating its very strong January performance, pulling back a bit earlier in the month, then bouncing slightly and trading sideways for a few days. The stock is now near 47 and its rising 25-day moving average is just above 45, so there might be a little action in store. PAM looks like a good buy here or on a pullback of a point or so. BUY.
After its gap up to 81 on heavy volume following its January 19 earnings report, TAL Education (TAL) surged higher, reaching 88 last Friday. The stock’s correction after such an energetic rally is normal, and represents a buying opportunity. BUY.
Vale (VALE) caught a strong updraft last Friday and Monday, jumping from a close at 9.8 on February 8 to above 11 on February 13, after a gap up on more than double its average volume. Earnings are due on February 23 before the market opens, with analysts expecting revenue of $8.66 billion for the quarter and earnings of 26 cents per share. VALE is a buy anywhere under 11. BUY.
VanEck Vectors Russia ETF (RSX) doesn’t seem to reflect any of the turbulence of the U.S.–Russia relationship right now. Since the beginning of 2017, the ETF has been trading mostly in a very tight range with support at 21.5 and resistance at 22. We’ll stick with our recommendation to Buy a Half, but will also watch closely for any sign of weakness. A push out above 22 will be bullish, but a dip below 21 will be bearish. BUY A HALF.
Weibo (WB) has been rallying since 2017 began, and has been trading up and down for more than a week, with the up days powering past the down days. With Q4 results out on February 22 after the close, it’s probably not prudent to jump in with both feet. But you can buy a half position here and keep a close eye on the reaction to earnings. BUY A HALF.
ZTO Express (ZTO) has actually shown some form this week, rallying from 12 to 14, with double its average trading volume on Wednesday’s advance. If the stock can confirm that 12 is a durable support level, we’ll look for more institutional buying as a signal to start a position. For now, we’ll keep it on the Watch list. WATCH.
