WHAT TO DO NOW: The iShares EM Fund has bolted higher since July 10, giving us a robust and unambiguous Buy signal. We have two portfolio moves tonight: We’re selling LG Display (LPL) and upping our position in YY Inc. (YY) to a full Buy.
Trading volume is down as investors big and small head for the beach. Second, it’s a bull market, as the major indexes have all registered all-time highs (the Dow managed it last Friday). The U.S. political situation, Brexit, the Fed’s monetary policy, the upcoming earnings season—all of these things are being fed into the market, and the result is new highs. No matter how many qualifiers or caveats you put on, it’s a bull market. And we take that seriously.
The Cabot Emerging Markets Timer is emphatically positive, as iShares EM Fund (EEM) has pulled out of an eight-week consolidation with an eight-day rally to new highs. EEM tagged its 50-day moving average on July 7, then lifted off on good volume. It’s best not to overthink this. It’s a bull market.
The next big event to consider will come as earnings season revs up. For emerging market companies, report dates will come in August. We have a firm date for one of our stocks—TAL Education will report on July 27 before the market opens—and the schedule should firm up over the next week or two.
Markets wobbled, but stayed pretty close to flat, finishing narrowly mixed for the day. At the close, the Dow was down 29 points (0.13%), the S&P 500 fell a fraction (0.02%) and the Nasdaq gained 5 points (0.08%). The iShares MSCI Emerging Markets ETF (EEM) was flat, losing 0.05 points (0.11%), to finish at 43.66.
Recommended Stocks
Alibaba (BABA) made a nice run last week, breaking out of the consolidation that followed its June 8 gap-up from 125 to 143. The estimated date for the company’s Q2 report is August 11. The stock is a real liquid leader, trading nearly 19 million shares a day, and institutional ownership is heavy. As always, if you don’t own any, try to buy on pullbacks of a few points. BUY.
Autohome (ATHM) was dinged by a day of selling on July 19 on slightly elevated volume, but the stock bounced back today. ATHM enjoyed a remarkable string of small gains on calm volume that began on June 29. This indication of accumulation (and possibly steady short-covering since short interest has been high) is all to the good. The tentative date for earnings is August 16. We will stay on Buy. BUY.
China Lodging Group (HTHT) made a strong, four-day run from 80 to 94 that began last Friday, blasting out of the trading range that has contained it since the middle of May. The company announced its preliminary results for hotel operations on July 17, and the news was very good. Occupancy rates at leased/owned and manachised hotels came in at 91%, compared to 87% and 85% in the same quarter last year. With the market ticking right along and HTHT having staged a breakout, the stock’s Buy rating is in full force. Tentative earnings date is around the middle of August. BUY.
HDFC Bank (HDB) started a rally in late June that resulted in new highs on July 12 and has continued to rise. Volume clues have shown elevated trading on buying days. Analysts have been praising the Indian financial sector, and HDFC Bank is well situated for further gains. We will keep HDB rated Buy. BUY.
JD.com (JD) is staging its third run at resistance at 44. The good news is that the stock’s rise from its early-July low at 39 has featured rising volume and it’s trading near the top of the range it has occupied since early June. All-in-all, it looks like a good setup, but with earnings likely out in early August, we’re content to keep our half position rated Hold until we get either a breakout on volume or good earnings news. HOLD A HALF.
LG Display (LPL) took a major hit today, falling from Wednesday’s 16.6 close to 14.8 just after the open. The stock immediately began to recover, and pushed back above 15 in the afternoon session. But even with the bounce, LPL was down more than 8%, and buying was drying up. LPL has always been volatile, but this is too much. We will sell our half position in LPL, taking a small loss (around 5%) and hold the cash for now. SELL.
Melco Resorts (MLCO) made a sharp skid in late June (along with all Macau gambling enterprises) on news of softer-than-expected gaming results. The stock has hopped around a little, but support at 21 looks firm. We will keep the Hold rating on MLCO while we wait for quarterly earnings, likely due in early August. HOLD.
TAL Education (TAL) has been enjoying a rally on rising volume, confirming the stock’s July breakout from its two-month consolidation. We would like to fill our position in TAL, but with a firm report date of July 27, the risk is just too great. We will keep our recommendation to Buy a Half, but you should probably wait to see the reaction next Thursday before making a move. BUY A HALF.
Tencent Holdings (TCEHY) met resistance at 37 in late June and again last week. But the stock popped above 38 on Wednesday and held its gains today, confirming our return to a Buy rating in last week’s issue. Tencent isn’t expected to report until mid-August, so there’s plenty of time for you to get in and build a profit cushion. BUY.
YY Inc. (YY) was recommended in the July 13 issue and jumped from 59 to 64 on July 14. Both July 14 and July 17 featured trading volume that more than doubled the average, giving evidence that heavy institutional accumulation was going on. We recommended last week that you buy a half, but we’re going to fill the position today. BUY.
