WHAT TO DO NOW: Emerging market stocks have had another soft week, with the iShares EM Fund (EEM) below its 25-, 50- and 200-day moving averages, although Chinese stocks continue to hold steady. Today, we’ve sold Petrobras (PBR) in a Special Hotline and tonight we’re moving 58.com (WUBA) to a Hold rating.
Markets have been under pressure from fears of a trade war between the U.S. and China, and today’s cancellation of the proposed summit between Trump and Kim Jong-Un gave investors another zap from the worry machine. Since reaching new highs in late January, the indexes we follow, both U.S. and emerging market, have been trading in roughly tightening ranges, with very tight trading in the last couple of weeks.
The iShares EM Fund (EEM) has been experiencing a series of lower highs since it hit new highs in late January. On the other hand, EEM has found firm support between 45 and 46 in February and twice this month. The resulting wedge pattern is often a precursor to a big move, but there are no hints as to the direction of that move.
The comparative strength of the exclusively Chinese Golden Dragon ETF (PGJ) is helpful, but not enough to give us a buy signal. PGJ is still above its 25- and 50-day moving averages, but has tightened into a trading range between 46.5 and 47.5 over the last two weeks. So the only approach that makes sense is to take things on a stock-by-stock basis.
We have just two remaining stocks that have yet to report their latest quarters and both—Noah Holding (NOAH) and PagSeguro (PAGS)—will be reporting on Tuesday, May 29 after the market closes.
The markets were down slightly today, with all three major indexes slumping in the morning session and strengthening to close with fractional losses. At the close, the Dow was down 75 points (0.30%), the S&P 500 fell 6 points (0.20%) and the Nasdaq was flat, down 2 points (0.02%). The iShares MSCI Emerging Markets ETF (EEM) slipped lower by a quarter point (0.25%) to close at 46.24.
51Job (JOBS) has been in an uptrend since the company reported its strongest revenue growth in years (46%) on May 3. The stock pushed out to new all-time highs above 100 on May 9 and, after a short pause to consolidate, made another new high today. In the future, I’d like to simplify the portfolio by making decisions to either increase some of our half position to full positions or let the stocks go. But with the market in a queasy state, I guess now’s not the right time to start. So I’ll leave JOBS rated Buy a Half. BUY A HALF.
58.com (WUBA) reported its Q1 results this morning before the market opened, and while 36% revenue growth and 230% earnings growth sound objectively strong, investors reacted badly to the report, sending WUBA down sharply at the open. A little opportunistic buying when the stock fell below 77 provided some lift and the stock stabilized above 80. That show of support (and the fact that the report appeared to beat on both revenue and earnings), is enough for us to keep the stock in the portfolio. We’ll change its rating to Hold. HOLD A HALF.
Alibaba (BABA) has made five close approaches to resistance at 200 over the last couple of weeks and has been turned back each time. But the stock is near the top of its recent trading range and looks to be digesting the follow-through from its positive high-volume reaction to earnings on May 4. In a show of power, founder Jack Ma is asking investors in Alibaba’s Ant Financial to agree not to invest in rivals Tencent Holdings and JD.com. We will keep the stock rated Buy, and note that a little patience may yield a chance to get in several points below 195. BUY.
Autohome (ATHM) is still consolidating its early May jump from 91 to 107, and the stock was dragged down a little today by general market weakness. Overall, the stock has been acting well since dipping to its moving averages in February, so we’re not overly concerned. We’ll stay on Buy. BUY.
BeiGene (BGNE) actually nicked the 200 barrier on Monday, so its recent dip below 190 looks like a great buying opportunity. The company started Phase III clinical trials of a new ovarian cancer drug last week. If we get a more supportive market, BGNE is a leading candidate for advancement to a full Buy. For now, we will keep the Buy a Half rating. BUY A HALF.
GDS Holdings (GDS) announced the acquisition of an additional data center in Shanghai, cementing its leadership in that crucial market. GDS accelerated after its May 10 earnings report and has been ignoring the fluctuations of the market. GDS may even be even a little extended, as it’s trading just under 40 and its 25-day moving average is back just over 32. You can buy on any normal weakness. BUY.
iQIYI (IQ) is still young and still volatile as heck. In the last three days, it has popped from 20.5 to 23.5, maybe in response to news that this streaming video leader is expanding its offline operations with an on-demand physical movie theater. This kind of volatility can cut both ways, but can be a great opportunity as long as we keep very close tabs on the stock’s movements. BUY A HALF.
Noah Holdings (NOAH), which ran from 49 on April 20 to 67 a month later, has been giving back some of those explosive gains over the last four days. NOAH has dipped below 62, which is still well above its 25-day moving average. The big news about NOAH is that the company will report its Q1 results next Tuesday, May 29, after the market closes. There are no analysts’ estimates, so we’ll just have to watch the reaction. In the meantime, we’ll keep the stock rated Watch. WATCH.
PagSeguro (PAGS) will also be reporting its latest results next Tuesday, May 29, after the close. PAGS has just staged a two-day rally that has lifted it from 32 to 35, but that leaves it well within the trading range it has occupied since March. The Tuesday earnings report may be the catalyst the stock needs to break out of its post-IPO base. Analysts are estimating that revenue will come in just over $172 million and earnings will be 18 cents per share. We’ll be watching closely. HOLD A HALF.
After five days of a relatively normal pullback, Petrobras (PBR) went into free-fall this morning. The catalyst may have been the company’s decision to cut its price for diesel fuel by 10% after a truckers strike (over high fuel costs) began a few days ago. The strike has been gutting Brazil’s economy, which is still fragile after a recent deep recession. We sent a Special Hotline earlier today recommending the sale of our half position in PBR. SOLD.
TAL Education (TAL) had a rather delayed reaction to its April 26 earnings report. The stock traded flat until May 3, when it started a rally that pushed it to new all-time highs on May 10. After a two-day correction, TAL started climbing again and has hit a succession of new highs this week before today’s Korea-related pullback. The dip looks buyable. BUY A HALF.
