WHAT TO DO NOW: The Emerging Markets Timer keeps flashing a green light, so we remain bullish. There are no changes in the portfolio tonight.
Market Environment
U.S. markets have been heading sideways for a couple of months (the Nasdaq is the exception, but even it has lost much of its momentum). The reasons given are pretty much the usual suspects: The Fed, Brexit, politics, debt, etc., but with the conflicting influences of the Deutsche Bank crisis (which is chilling interest in the banking sector) and rising oil prices (which are kickstarting energy stocks).Growth stocks have been considerably stronger than the broad market, and we haven’t yet seen investors pull in their horns on that end of the investing spectrum.The Cabot Emerging Markets Timer is still positive, with the iShares MSCI Emerging Markets ETF (EEM) above both its 25- and 50-day moving averages. The only quibble is that EEM has been heading sideways since the middle of August, and the 25-day moving average is virtually flat. Something will have to give eventually, but with our stocks acting well, we won’t second-guess the indicator.The markets came under selling pressure today, sliding to modest losses.
At the close, the Dow fell 196 points (1.07%), the S&P dipped 20 points (0.93%) and the Nasdaq dropped 49 points (0.93%). The iShares MSCI Emerging Markets ETF (EEM) slipped 0.68 points (1.78%) to finish at 37.28.
Recommended Stocks
Alibaba (BABA 106) caught an updraft on September 21 and 22, rallying to near 110, then the stock was down two days, up two days, then down today. On Wednesday, BABA reached its highest level since December 2014. The stock’s advance since its big gap up on August 11 has been marked by pullbacks, so today’s dip doesn’t seem threatening. This is still the biggest story in the portfolio, and analysts are pitching in with improved ratings and price targets. This correction looks buyable. BUY.
Baozun (BZUN 15) looks just fine. On September 16, the stock capped a five-day rally with a high-volume advance and has been trading sideways and holding those gains. This action makes sense given the sideways trading of the major indexes. A little patience should offer a chance to get started with a buy under 15. BUY A HALF.
China Lodging Group (HTHT 46) is still digesting gains from its rally that reached a new high on August 29. The stock has been trading sideways—mostly between 45 and 46—for a month now, and it should be getting ready for its next move. The stock opened strongly higher today, but gradually gave back over half of its gains. That higher open may have been a signal that buyers are ready to get back to work. We’ll stay on Buy. BUY.
Line Corporation (LN 49) announced today that it’s buying a 25% position in Snow, a rival chat app that’s been attracting users with fun photo filters that turn users faces into sports and pop stars. Both Line and Snow are subsidiaries of South Korean nternet giant Naver, so the sale is likely intended to lower competitive pressures between the two. We’ll keep our recommendation at Buy a Half. BUY A HALF.
MercadoLibre (MELI 184) staged a six-day rally from September 15 through 22, pushing it to new all-time highs at 192. The stock’s action since then has been a quiet consolidation with support at 185. This looks like MELI’s familiar rally-and-consolidate pattern. Try to buy around 185. BUY.
Momo Inc. (MOMO 23) began to rally in July, but didn’t begin to trade on higher volume until mid August. The stock touched 25 early in September and has been consolidating its big gains all month, with some evidence that buyers and sellers are fighting it out. We will watch closely as the stock’s 25-day has now caught up with it, which should produce some positive action if everything is okay. BUY A HALF.
NetEase (NTES 242) has been rallying since May, and got a big boost on higher trading volume on September 12. The company announced this week that it has extended its online game licensing deal with Activision Blizzard through 2020, including new content as Activision releases it. The announcement did not cause a flurry of activity in NTES, but it’s welcome news all the same. This minor correction looks buyable. BUY.
Silicon Motion (SIMO 52) is acting like it doesn’t want to get booted out of the portfolio, which was a definite possibility. We put SIMO on Hold in last week’s issue, and the stock took a small run lower from last Friday to Tuesday. But Wednesday was a very good day for SIMO, which jumped from 49 to 51 on heavy volume and the stock is following through to the upside today. Given that there is probably a sizable amount of overhead, it may take a while for SIMO to chew its way higher. But we’re willing to be patient. HOLD A HALF.
TAL Education (XRS 70) hacked around in July and August, and we’ve had it on Hold for a while. But the stock got a shot of energy on September 15, leaping from 64 to 70 on increased volume. XRS hasn’t advanced much past that new high, but with its lows rising and volume calm, it looks like a little time under that resistance at 70 will eventually give way to a new breakout. BUY.
Tencent Holdings (TCEHY 28) made its last contact with its 25-day moving average in early August, and has been floating higher (just above that average) ever since. TCEHY continues to hop around, but the trend is higher. This is a very big story, and while it’s a shame that many whales can’t buy because it’s an OTC stock, it’s doing just fine. BUY.
Weibo (WB 51) has been rallying strongly since February, with just two corrections that extended to two weeks, and those were pretty minor. Yesterday, WB hit 52.29 (intraday), which was also its all-time intraday high back on August 29. WB is hovering just under that high and has been registering a series of rising lows this month. We’ll keep our recommendation to Buy a Half. BUY A HALF.
