WHAT TO DO NOW: The iShares EM Fund (EEM) is holding above its 50-day moving average, which keeps the Cabot Emerging Markets Timer positive. And we’re encouraged by the rebound in Chinese stocks as a group. Five stocks in the portfolio are scheduled to report earnings in the next couple of weeks (and the sixth likely will as well). We have no changes tonight.
With the U.S. president in the middle of an Asian tour, there is always the possibility of something happening that will move the market, but it’s not likely. Diplomatic visits, even ones involving this unpredictable president, are usually scripted in advance. So the things moving the market are the usual suspects: economic data, quarterly earnings reports, Fed decisions, investor sentiment and tax reform rumors.
After its brief (two-day) dip under its 50-day moving average in late September, the iShares emerging markets ETF (EEM) has acted well. EEM pulled back to its 25-day moving average in late October, but recovered quickly and has stayed safely above its moving averages since then. Another positive sign for the health of emerging market stocks is that PowerShares Golden Dragon ETF (PGJ) has recovered from its late-October correction and is back on top of its 25- and 50-day moving averages (which are just about on top of one another). It’s not the strongest rally we’ve ever seen, but it’s definitely positive and keeps our Cabot Emerging Markets Timer positive.
Emerging markets earnings season is in high gear now, with three of our stocks reporting next week and two the week after. JD.com will report Monday, 11/13, before the open. YY Inc. after the close on Tuesday and Tencent Holdings on Wednesday after the close. ZTO Express will post results after the close on Monday, 11/20 and Sociedad Quimica y Minera’s report will come after the close on 11/22. The only portfolio holding for which we don’t have a report date is China Lodging, whose Q2 report came on 8/17, so Q3 will likely drop in the next couple of weeks.
The markets headed down in the morning and up in the afternoon, but still finished the day uniformly in the red. At the bell, the Dow was down 101 points (0.43%), the S&P 500 lost 10 points (0.38%) and the Nasdaq fell 39 points (0.58%). The iShares MSCI Emerging Markets ETF (EEM) was off 0.29 points (-0.62%), to finish at 46.49.
Alibaba (BABA) reported a nice earnings beat on November 2, but has been chopping around since then. The stock actually pushed out to a new all-time high above 190 on the news, but closed at 185 on that day. We will keep the stock on Buy, as this minor pullback to the stock’s old October resistance looks like a good spot to take a small position. BUY.
Baidu (BIDU) gapped down from 261 to 239 after its earnings report on October 27, and hasn’t made a sustained move to fill that gap. Maybe there was a little disappointment in the company’s guidance for the next quarter. At this point, BIDU is a heavily followed, well-known stock, and may just be caught in a broader pullback in enthusiasm about Chinese issues. We will keep a close eye on technical support in the 228–233 range; any dip below that would be bearish. We will stay on Hold until it proves itself by bouncing back above 250. HOLD.
China Lodging Group (HTHT) is down about 3% today, keeping the stock in the slump it’s been in since its high-volume declines on October 26 and November 2. With all that said, HTHT has been finding support at its rising 50-day moving average. With no set earnings date, the stock is a bit of a mystery. The announcement of a special cash dividend of 64 cents per American Depositary Share to all holders as of December 4 is likely providing some support as well. We will keep HTHT on Buy, but you should keep any new investments small until earnings are safely in the can, likely within the next two weeks. BUY.
Grupo Supervielle (SUPV) reported Q3 results after the yesterday’s close, and beat estimates by a comfortable margin, with $314 million in revenue and 46 cents per share in earnings. Management also raised guidance for the full year. The reaction has been muted, perhaps because Argentina’s still subject to persistent inflation and a soft job recovery. Still, the company’s secondary stock offering in September put $342 million in its growth arsenal, so we expect investors to start moving back into the stock soon. BUY.
Given its relatively brief time as a heavily traded name, we have been giving our half position in Jupai Holdings (JP) a lot of slack. JP topped out at 29 on October 23, fell to its rising 25-day moving average at 20 on October 30, soared back to 27 on Tuesday and is now trading around 23. We will hold the stock through the company’s earnings report on Monday morning, and, given its volatility, we expect that the reaction will make our decision clear. If you want to put a stop in at 20 ahead of earnings, that would be fine. HOLD A HALF.
Sina.com (SINA) reported its Q3 results before the open on Tuesday and immediately dropped from its Monday close at 110 to below 99. The report topped estimates on both revenue and earnings, and growth in monthly active users for Weibo (one of Sina’s biggest assets) was positive. But while WB spiked higher on the news, SINA, although it made up much of its free-fall over the next day-and-a-half, ran into resistance at 109. We’ll keep SINA on a short leash, expecting that the strength of WB will eventually boost the parent company. We’ll hold for now. HOLD.
Sociedad Quimica y Minera (SQM) has been biding its time, trading sideways under resistance at 62 as it waits for its quarterly report on November 22, after the close. That means the reaction will come just as U.S. markets close for the Thanksgiving holiday. Analysts estimate revenue at $519 million and EPS at 41 cents. We will stay on Hold until we see how SQM reacts to the news. HOLD A HALF.
TAL Education (TAL) gapped down to 28 on huge volume after its October 26 earnings report, but found support at 27 in the following days. The stock rebounded nicely last Friday and on Monday and has now partly filled its disappointing gap. The stock’s 25-day moving average, now at 32, is headed down, and may supply a little impetus when it meets the stock at around 30. We have plenty of profit cushion to work with, but if TAL makes another run at that 27 support level, we will let it go. For now, we’re holding. HOLD A HALF.
Tencent Holdings (TCEHY) made headlines yesterday when it was revealed that it had taken a 12% equity position in the social platform Snap (SNAP). Snap just reported terrible results for the third quarter and dropped more than 10% on Wednesday. But Tencent, which will release its Q3 number next Wednesday after the close, has been in a strong rally since the first trading day of November after trading flat all through October. There are no analysts’ estimates to work with, so when the report comes, we will need to watch management’s comments and projections very closely. BUY.
YY Inc. (YY) had a stiff four-day correction in late October, but didn’t drop below its 50-day moving average and has nosed higher since. With earnings due out after the close next Tuesday, this looks like a normal period of sideways trading on relatively low volume. You shouldn’t take a full position this close to earnings, but a nibble is fine. BUY.
ZTO Express (ZTO) is acting like the energetic young stock that it is, following through to the upside after its breakout move on spiking volume on November 1. Earnings are due on November 20 after the close. Look for any dip of 50 cents to a dollar as an entry point. BUY A HALF.
