WHAT TO DO NOW: The iShares EM Fund (EEM) is still well on top of its moving averages, which keeps the Emerging Markets Timer firmly positive. We have no changes to the portfolio tonight.
This week started off with an unwelcome bang, as stocks dipped on Monday and Tuesday, with Chinese ADRs coming in for an especially severe selloff. It’s important to note that both the iShares EM Fund (EEM) and the Golden Dragon ETF (PGJ) that tracks Chinese ADRs were so far ahead of their 25- and 50-day moving averages that there was never a question of losing our buy signal. The real effect of the correction was to lower the temperature of the emerging universe a bit and shake out a few weak hands. The Fed’s decision to take no action has been folded into the mix of positives and negatives and the market has mostly shrugged. So, barring an adverse headline event, the immediate future of the market will likely come down to earnings reports and how investors react to them. The market’s little juke lower may be the start of a major correction, but it seems unlikely.
The Cabot Emerging Markets Timer is positive at this point, with EEM still a little over 5% above its lower (50-day) moving average. That’s a little extended, but not dangerously so. The correction has cleared some of the froth out of the market, but not enough to really blunt the enthusiasm of dedicated growth investors.
The next major events for the stocks in our portfolio will be Q4 and 2017 earnings reports. So far, we have two companies that have reported (including Alibaba this morning) and three more that have set firm dates for their reports. Baidu will release results after the market closes on February 13. Grupo Supervielle will announce on February 19 after the close and Tencent Holdings will report on March 21. Keeping a close eye on how investors react to these quarterly/annual reports is the most important thing.
The markets were mixed for the day, with the major indexes peaking near 1:00 p.m., then sliding lower in the afternoon session. At the close, the Dow was up by 37 points ((0.14%), the S&P 500 slipped by 2 points (0.06%) and the Nasdaq down 26 points (0.35%). The iShares MSCI Emerging Markets ETF (EEM) lost 0.69 points (1.34) to close at 50.35.
58.com (WUBA) actually made a new all-time high on Monday, but slipped lower in the general selloff on Monday and Tuesday. The stock should find support at its 50-day moving average and volume is generally calm. It’s likely that the stock will remain in its January trading range until earnings; no set date yet. BUY A HALF.
After marking time since early November, Alibaba (BABA) made a strong four-day run starting on January 23. That rally from 184 to 205 was a welcome confirmation that buyers were still interested in BABA. This morning’s earnings report from Alibaba was most notable for falling short of the $1.65 per share earnings estimate by two cents. Revenue, on the other hand, came in at $12.75 billion, where the consensus estimate was $12.35 billion. For a company with a market cap of over $500 billion, a 66% jump in revenue is remarkable. Alibaba also raised its revenue growth guidance for fiscal 2018 (which ends in March) to between 55% and 56%, which is up from its previous 49% to 53% guidance. BABA took a little hit from the earnings miss, but everything else in the report was positive, so we’re not too worried. News that Alibaba would take a 33% stake in the Chinese payments giant Ant Financial was also taken as a good sign, as that may smooth the way for Ant to come public. We will leave the stock on Hold, but we expect it to recover from its earnings miss fairly quickly. HOLD.
Autohome (ATHM) dipped along with the market on Monday and Tuesday, but volume was light and the stock finished near the top of its trading range on Tuesday. ATHM’s quarterly report will likely come out in early March, which is plenty of time for a new position to get settled. The stock’s pullback from its January 26 high near 87 looks like a good buying opportunity. BUY.
Baidu (BIDU) gapped down slightly on heavier-than-usual volume on Tuesday, finishing near its 50-day moving average. But since BIDU has been trading mostly sideways since late October, its averages are less than crucial. Baidu will report its latest quarterly results on February 13, and the response from investors really will be crucial. I love Baidu’s story and expect big things in the long run, but we really can’t tie up 5% of our capital in a stock that goes sideways for four months. Analysts are looking for revenue of $3.57 billion and earnings of $2.05 per share when Baidu releases its results. But we will be looking for evidence that investors are ready to resume buying. HOLD A HALF.
We took partial profits in China Lodging Group (HTHT) last November, and our profit in the remaining half position is still huge. But there’s no doubt that the stock’s action since it hit a new high at 166 on January 22 has been problematic. HTHT has had a very long run, but its November correction likely shook out many weak hands. And the stock is at a technical support level (142) from October. Management has said it wants to build the company’s string of properties from its present 3,656 to 10,000, with accommodations for every price point. HTHT needs to find support here, but I’m not too worried, yet. BUY A HALF.
After its remarkable rebound from its descent to its 50-day moving average on January 16, GDS Holdings (GDS) has continued to surprise. GDS, which traded a calm 1.2 million shares a week ago, spiked its trading volume to 6.3 million shares a day later, a day when it edged up about a quarter of a point. The stock took the downdraft earlier this week in stride and popped higher on Wednesday and today. It’s volatile, but the trend is very positive. BUY.
In January, Grupo Supervielle (SUPV) rallied out of a December/January base with resistance at 30, soared for four days to 33, then started to correct. The correction found support right at 30, just like the book says, then rallied nicely yesterday and today. All of this action came on calm volume. The most likely scenario is that SUPV will hack around while investors look ahead to quarterly results on February 19. Estimates call for $218 million in revenue and 52 cents per share in earnings. You can buy on any weakness. HOLD A HALF.
While the most dramatic news out of Macau has been WYNN’s big correction in the aftermath of revelations about its founder’s behavior, Melco Resorts and Entertainment (MLCO) has been behaving itself well. The bigger news out of Macau is that gross gaming revenue increased by 36% in January, beating the most optimistic analysts’ estimates by almost 10 points. MLCO responded with a three-month rally that has put our position in the black. Earnings are likely out in the middle of the month and we’ll keep the stock rated Buy. BUY.
Petrobras (PBR) is still digesting its gap up on January 24. Ideally, the stock will consolidate under resistance at 14 for a while and then make its move. The company’s January 29 report on its proved reserves showed 10.5 billion barrels of oil and condensates, nearly 300 billion cubic meters of natural gas and oil equivalents of 12.3 billion. There’s no earnings date yet. BUY A HALF.
TAL Education (TAL) gapped up on January 25 after a satisfactory earnings report that beat on revenue, earnings and student enrollments. The stock has now filled the gap from its October earnings disappointment, so it should be ready to resume its advance. We’re waiting for the stock to make a run at its old high at 36 before we recommend buying again. HOLD A HALF.
Tencent Holdings (TCEHY) ran from a correction low of 47 in December to a high above 60 in January, so its pullback of a couple of points looks perfectly normal. You can use this correction to start a position, as the company’s earnings report is on the far horizon on March 21. BUY.
Weibo (WB) hit a new high at 136 on January 26, so its pullback under 130 looked like a normal correction. No word yet from the company on when earnings will come out, so you can use any move under 130 as a buying opportunity. BUY.
YY Inc. (YY) moved steadily higher through December and most of January, so its three-day pullback that began last Friday looks normal and didn’t result in a closing price below its 25-day moving average. Try to buy on dips. BUY.
