WHAT TO DO NOW: The iShares EM Fund (EEM) has firmed up over the last few days, but has yet to actually kick out to the upside. So, while it’s still in the vicinity of its moving averages, we still have a caution signal in force. The stocks that were close to being ejected from the portfolio have also stabilized, so we have no changes to the portfolio tonight.
Markets have been under siege from Washington, D.C. saber-rattling about a possible trade war. Increased threats have pulled the markets lower and indications of easing tension have pushed them higher. It’s a situation in which the linkage between news and the market is clearer and more direct than usual. Investors appear to have priced their fears into the market and the results haven’t been too dire, so it will probably fall to earnings season to provide the next big influence on the behavior of the market and individual stocks. There’s a general sense of optimism about earnings season, and that’s providing some support for the broad market in recent days.
After gapping down below its 25- and 50-day moving averages on March 22, the iShares EM Fund (EEM) has shown some heaviness, but has mostly traded sideways in a tightening range. EEM is now fairly close to those averages, but the bottom line is that buyers haven’t shown any eagerness to fill that March gap. The Golden Dragon ETF (PGJ) that tracks Chinese ADRs, has been in an active rally since April 4, with good buying volume on April 10 and 11. But it’s still not back on top of its moving averages, so we continue to operate under a yellow flag.
The markets were up today, with all three major indexes scoring solid gains. At the close, the Dow was up 293 points (1.21%), the S&P 500 was up 22 points (0.83%) and the Nasdaq gained 71 points (1.01%). The iShares MSCI Emerging Markets ETF (EEM) was virtually flat, down 0.02 points (0.04%) to close at 48.05.
51Job (JOBS) is acting very well, hitting new highs this week. Tuesday’s advance came on a significant spike in trading volume, which is good to see. JOBS spent more than five months trading between 60 and 70, then staged a blastoff in early March. This rally looks like a continuation of that advance after a pause in late March. BUY A HALF.
Alibaba (BABA) has been trading in a range since September, finding support in the mid 160s and even dipping below its 200-day moving average last week. BABA has also surged over 200 in January and March, so there’s some appetite for the stock. The stock’s bounce from 166 last Friday to 177 today is welcome, but isn’t especially significant given how long the stock has been constrained by its range. We will keep BABA rated Hold, as it’s still one of the biggest Chinese stories around, and could put this long flat patch to good use if sentiment about China improves. HOLD.
Autohome (ATHM), which had stalled under resistance at 90 for a few weeks, has engineered a nice breakout run beginning with a bounce on April 4. The stock has found support at its 50-day moving average three times this year and the breakout to 96 is a great sign of strength. We’ll keep ATHM rated Buy, but in light of the shaky condition of the market, keep any initial investment small. BUY.
Azul S.A. (AZUL) started a mild, three-day correction on Monday that has pulled it slightly below its March–early April trading range. The release of the company’s preliminary traffic results for March showed a 10% year-over-year increase in consolidated passenger traffic, which resulted in an 80.6% load factor, up 0.4% from 2017 levels. The company is also continuing its program of replacing older aircraft with next-generation replacements. This pullback looks normal, and we will keep AZUL rated Buy a Half. BUY A HALF.
BeiGene (BGNE) put in two weeks of very tight trading around 162 after its March 22–23 correction. And now, after the arrival of its rising 25-day moving average, shares have made a move above 170, which puts it within range of its all-time high close at 177. The company announced on Tuesday that it is beginning Phase 2 clinical trials for one of its antibody-based cancer treatments. BGNE is still speculative, but the chart is technically quite sound. If you have a big cash position, you can take a nibble of BGNE. We will keep the Buy a Half rating. BUY A HALF.
GDS Holdings (GDS) is continuing its sideways movement, trading in a tightening range since its February 1 high. The stock is still young and the company isn’t profitable, but cash flow is in the black and rowing rapidly. And institutional sponsorship has been increasing steadily, although it’s still small. In other words, the potential here is huge, as long as we can stay in the stock, which is relatively easy given our profit. This two-month consolidation could make a nice base for further advances, but we’ll wait for a move to the upside before we upgrade our rating. HOLD.
PagSeguro (PAGS) has given back much of its late-March rally, but not all. The stock is back to where we bought it, so we will be watching closely. But PAGS is still above its 50-day moving average, so we will keep it rated Buy a Half. BUY A HALF.
With oil prices at their highest level since late 2014, Petrobras (PBR) should be sitting pretty. PBR has indeed rallied from its early-April weakness to a position atop its 25- and 50-day moving averages. The company just reinforced its commitment to BP as a strategic partner in exploration, production, trading and other operations. The stock still has its March 6 high near 15 to deal with, but we think patience will pay off with PBR. BUY A HALF.
We moved our remaining half position in TAL Education (TAL) to a hold rating in last week’s issue, as the stock’s slip from its all-time high over 41 on March 20 to a low near 33 on April 4 was disconcerting. But TAL has bounced back above 37, so the danger appears to be over for now. TAL Education has announced that it will release its Q4 and fiscal 2018 results on April 26 before the market opens, and the reaction to that event will tell us much about our future with the stock. We’ll stay with our Hold a Half rating for now. HOLD A HALF.
Tencent Holdings (TCEHY) hasn’t done much to get back on track after its March 22 earnings-induced gap down on heavy volume. On the other hand, it bounced after nearing 50 on April 4 and is now trading calmly around 53. We still have a sizable profit to work with, and if the stock doesn’t force our hand by, for instance, breaching 50, we’re content to keep our half position on Hold. HOLD A HALF.
Vipshop Holdings (VIPS) looks like it’s still digesting its huge move from 9 in December to 19 in mid-February. The stock’s dip to 15.5 on April 4 nearly got the stock booted from the portfolio, but a recovery to near 17 has gained the stock a reprieve for now. All this volatility looks like a fairly normal consolidation of a big gain, but it’s still nervous-making. Hold for now. HOLD.
Weibo (WB) has been as high as 140 and as low as 110 since the beginning of the year, moving mostly in sync with the action of the market. It would be hard to find a company with better revenue and earnings growth, after-tax profit margins and analyst estimates for this year and the next. We will stick with WB as long as we can, which is easier right now because we’re back to a slight profit in the position. HOLD.
