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Cabot Emerging Markets Investor Bi-weekly Update

The Emerging Markets Timer is in good shape, with iShares EM Fund sitting well above its 25-day moving average.

WHAT TO DO NOW: The Emerging Markets Timer is in good shape, with iShares EM Fund sitting well above its 25-day moving average. Many of our stocks are acting great, and our only action today will be to fill out our position in Momo Inc. (MOMO).

Market Environment

After the one-day thrashing endured by global stock markets on March 21, the major indexes generally straightened up and have been flying right since. While that one-day pullback hit just about every stock, emerging market stocks (as tracked by iShares EM Fund (EEM) fell less and have held their gains with calm, sideways trading. By contrast, the Dow and the S&P 500 are still well off their March highs, and the Nasdaq has rebounded from its significant pullback to once again challenge its highs. All in all, it looks like investors’ appetite for risk is still keen.

Several of the shoes that investors were waiting to hear drop have done so. The Fed has raised rates and expressed its intention to make two more hikes this year. The U.K. has sent the letter initiating the formal process of leaving the E.U. And the repeal and replacement of Obamacare has failed. So at this point, the biggest event on investors’ calendars is Q1 earnings season that will start in April, plus Tax Day on April 15. Add in the stronger-than-expected GDP growth numbers released today and there aren’t anywhere near as many stressors on the horizon.

EEM is hanging just under resistance at 40, and less than a quarter point off its previous high close. The Golden Dragon ETF (PGJ) that tracks Chinese ADRs took a slightly heavier hit on March 21, but has powered higher after just nicking its 25-day moving average on March 22. In other words, emerging market stocks are in good health as a group and we have a green light despite the unsettled state of U.S. stocks.

Markets continued their winning ways today, with all three major U.S. indexes booking small gains. At the close, the Dow was up 68 points (0.33%), the S&P 500 tacked on 7 points (0.29%) and the Nasdaq rose 17 points (0.28%). The iShares MSCI Emerging Markets ETF (EEM) was down moderately, shedding 0.21 points, a decline of 0.53%, to finish at 39.67.

Recommended Stocks

Alibaba (BABA) spent six weeks from late January to early March consolidating its big January rally, then staged the breakout above 106 that we’ve been looking for. The stock is gaining momentum, and if it tops 110, it will clear out all of its overhead resistance dating back to late 2014. It should be trading free at that point, with only its all-time high at 120 to conquer. There aren’t many bigger stories than Alibaba, and the stock’s action is impeccable. Look for dips of a couple of points to start a position. BUY.

We placed Autohome (ATHM) on Hold in last week’s issue, as the stock started a six-day correction on March 14 that finished with the big down day for the market on March 21. The stock looks to have found support at 31.5, a level that keeps it well within our loss limit, so we’ll keep our half position on Hold. HOLD A HALF.

Banco Santander Brazil (BSBR) gapped down on huge volume on March 28 and we recommended selling it in a Special Hotline. The stock dropped a little more on Wednesday and hasn’t shown much lift since. If you haven’t sold, now is the time. SOLD.

We placed BeiGene (BGNE) on Hold in the March 28 Special Hotline, as the stock’s normal correction from its early March highs turned alarming on March 21 during the global selloff. BGNE held support at 36, which is what we asked it to do, and looks like it may just need to re-base at this level. We will keep our half position on Hold, but will keep a close eye on that 36 support. HOLD A HALF.

China Lodging Group (HTHT) is acting exactly like a strong stock of a fundamentally sound business should. The stock corrected to below its 25-day moving average in the first half of March, then accelerated back to its upward trend line in a two-day rally following a great earnings report. The stock is still throwing a selling day in about every three days, and that’s what you should look for to get started if you don’t own any. We’ll stay on Buy. BUY. (JD) was hit especially hard by the market’s March 21 lurch lower, but has rebounded quickly and is back within reach of its old resistance at 32. JD also picked up coverage from an additional analyst last week with an “outperform” rating. We will keep the stock’s Hold rating, but a move above 32 will likely see us upgrade. HOLD.

LATAM Airlines (LFL) started its big advance on March 15, followed by a gap up on March 16. The follow-through to this blastoff, which began at 10, has pushed LFL to 13, which is a heck of a percentage gain. LFL is taking a small breather, dipping from 13.25 to 13. With the stock’s 25-day moving average back at 11.2, there is the potential for a bigger correction or a period of sideways trading. You can use this pullback to start a position. Keep to a half-position until we get a little profit cushion to work with. BUY A HALF.

Momo (MOMO) has climbed quickly after its double gap-up on March 7 and 8, with one sizable retreat on March 9 and another on March 20 and 21. But each of these corrections has been followed by a return to the stock’s upward trend line, and with today’s advance of over 4%, MOMO is now within a hair of its all-time high just below 36. To quote Cabot’s founder, “the most bullish thing a stock can do is go up.” We will fill our position in MOMO by buying another half. BUY.

NetEase (NTES) has been drifting slowly lower since March 2, finding support at 282, which was also the top of the stock’s February 16 earnings gap. NTES staged a four-day rally from March 22 through March 27, but has given back those gains this week. Given that this correction follows a run from 215 to 305, it’s not surprising. But it’s still a bit nervous-making. The stock is still above its 50-day moving average, and right now, the pullback looks like a buying opportunity. BUY.

Pampa Energia (PAM) has rocketed out of its five-week consolidation, running from 47 on March 14 to over 54 today. This latest rally has left the stock’s 25-day moving average behind at 48.7, so a pause or pullback is certainly possible. Look for a pullback of at least a point to start a position. BUY.

TAL Education (TAL) ran from 91 on March 9 to 106 at the close on March 24, a move that featured a steepening angle of attack. A couple of selling days (Monday and today) have reined the stock in a bit, which is a good thing. We’ll keep it on Buy. BUY.

Weibo (WB) was hit hard by the market’s weakness of March 21, but responded by putting on a rally that lasted six sessions and bounced the stock from its low at 48 to over 53 on Wednesday. WB has been all over the place since its big free-fall day on February 23, but this rally is encouraging. We will keep the stock rated Hold. HOLD A HALF.

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