WHAT TO DO NOW: The Cabot Emerging Markets Timer is flashing a technical Buy, but there are few good setups out there. There are no changes in today’s update.
The iShares EM Fund (EEM) has climbed back atop both its 25- and 50-day moving Buy signal from the Cabot Emerging Markets Timer. But there are a couple of problems with that Buy signal, which I think are best illustrated via a chart. Here’s a daily chart of EEM from the beginning of 2018, with its 25-day (red line) and 50-day (blue line) moving averages.
Since EEM’s peak in January, you can see the moments when it got back on top of its moving averages and issued weak buy signals. That happened in February, March, July August and now September.
But the other trend to notice is the series of lower highs, when EEM got back atop its averages but couldn’t get back to its high from the previous month. That has happened every month this year.
The bottom line is that, while I will be looking for a strong stock to add to the portfolio, I’m not feeling especially urgent about it. Once EEM gets past its year-long series of declining highs, I’ll get more enthusiastic.
This multi-month decline has plenty of reasons behind it. Recently, the trade war between the U.S. and China is a heavy weight around the neck of EM stocks. The strength of U.S. markets and U.S. currency also factor in.
But probably the biggest contributor to the emerging markets pullback is simply the remarkable success of the group in 2016 and 2017. After a two-year run like that, there has to be a correction to get the weak hands shaken out and create some bargain basement opportunities. Here’s a weekly chart of the EEM run that the market is now sleeping off.
I will keep the portfolio heavily in cash until I see the right combination of a recovery in the broad emerging markets sector and good buying opportunities in strong stocks. Ideally, we’re close, but as always, it’s best to wait for the stars to align before jumping in.
The major U.S. indexes were up in the morning and down in the afternoon, but finished with modest gains. At the close, the Dow was 55 points higher (0.21%), the S&P 500 gained 8 points (0.28%) and the Nasdaq tacked on a stronger 52 points (0.65%). The iShares MSCI Emerging Markets ETF (EEM) had a positive day, up 0.21 points (0.49%) to finish at 43.21.
Alibaba (BABA) is forming a rising wedge, with lows rising since September 11 and resistance in the high 160s. This two-week pattern is positive, but the stock needs to chug past resistance at 170 or so before a turning the corner. Founder Jack Ma’s impending departure doesn’t appear to have discouraged investors, as his strategy will likely be a strong template for his successor. I will keep BABA rated Hold. HOLD.
Baidu (BIDU) is still rebuilding following its gap down on August 1. The stock has put in a neat double-bottom at 210 in August and September with resistance at 230 to 235. The most-important recent news is that Baidu has inked a deal with WABCO Holdings (a U.S. firm specializing in vehicle brakes and control systems) to develop a self-driving system for commercial vehicles. Baidu has been working on AI solutions for self-driving cars, and WABCO has been working the trucking end of things. This could be significant in the longer run. I’ll keep Baidu rated Watch until the buyers move back in. WATCH.
BeiGene (BGNE) continues to narrow its trading range as it rebuilds from its June over-the-falls experience. The company picked up coverage from a new analyst on Tuesday (who started with an outperform rating) and reported positive results from a Phase I trial of one of its cancer drugs last Friday. The chart is supportive and the potential is huge. I’ll keep the rating of our half position at Buy. BUY A HALF.
Bilibili (BILI) was downgraded by a Morgan Stanley analyst on Monday and experienced a short nose-dive to as low as 11.3. Fortunately, that pullback gave way to three days of buying, leaving BILI back near 13 in today’s trading. That keeps the stock in its sideways trading channel, but holding on to its gap-up gains from August 28. Time will sort this out, but I’ll keep BILI rated Watch for now. WATCH.
Ecopetrol (EC), our Colombian oil company, experienced a nice blastoff on September 12, jumping from 22.5 to 25 on a spike in volume. The stock has shown an admirable disconnection from other emerging market stocks, and is participating in the general rebound in oil prices. With emerging market stocks showing a bit of strength, it makes sense to try to capture a little of this sector rally. BUY A HALF.
Huya Inc. (HUYA) has slipped below the support at 25 that has been a floor over the past six weeks. And while it’s not a big decline, it’s technically important. It’s likely that HUYA will be stuck here for a while, with a possible catalyst coming from Q3 results or a piece of meaningful news. I like the company’s great potential appeal to Chinese youth, but am a little wary about possible government interference should Beijing decide that watching others playing video games is even worse than having youth playing on their own. We’ll keep HUYA on the Watch list. WATCH.
iQIYI (IQ) has made a little progress over the last three days, including a 3% pop higher today. This action reinforces its support around 26 and continues IQ’s base-building effort. It’s not a powerhouse stock right now, but the longer the base goes, the better the breakout will be. We’ll keep our half position on Hold. HOLD A HALF.
Since the middle of June, RYB Education (RYB) has been building a tightening basing structure with a central tendency around 20. In this kind of market, staying on an even keel is plenty to keep the stock rated Buy a Half. BUY A HALF.
WNS Holdings (WNS) had a good day today, advancing nearly 2% to keep its narrowing basing structure in good shape. The stock hasn’t slipped from the correction range it established after its July 19 earnings report and I’m happy to keep it on the Watch list until the next move shows up. WATCH.