WHAT TO DO NOW: The Emerging Markets Timer is in great shape, as the iShares EM Fund has pushed out to new highs in recent days. We’re holding on tight to our winners, but we are downgrading LATAM Airlines to Hold tonight. Details below.
Market Environment
The iShares MSCI Emerging Markets ETF (EEM) feinted at a breakout above its resistance just above 40 last week, but pulled back for a few days before making a decisive move higher on Tuesday and Wednesday. This keeps our buy signal shining a clear green light. The Golden Dragon ETF (PGJ) that tracks Chinese ADRs broke higher in the third week of April and started a very strong rally on May 5 that has it trading at all-time highs and finally free of the trading range that kept it corralled during the past three years.
Investors’ appetite for risk is strong, but also selective, as the Dow and the S&P 500 have both been locked under persistent resistance since the beginning of March. It’s a good thing that the Nasdaq is doing so well, but it’s also disquieting. A bull market with a broader base would lower the risk. Macron’s win in the French presidential election was calming, but there’s still plenty of noise coming from Washington that could affect investors’ attitudes if the knives come out.
As for the market, most indexes had a good-sized dip this morning, denting many hot stocks, but the buyers showed up in the afternoon to limit the damage. At day’s end, the Dow was off 23 points (0.1%) and the Nasdaq was down 13 points (0.2%), but the iShares EM Fund was actually up seven cents (0.2%), which was encouraging to see.
Recommended Stocks
Alibaba (BABA) corrected for two days (May 3 and 4), then accelerated over the last four trading sessions to return to its upward trend line. The only headline news is that the company will expand Alipay and WeChat Pay in North America to serve the needs of the growing number of Chinese tourists. With earnings due out before the market opens on May 18, it’s risky to start a new full position here, but a small position could work out well. BUY.
China Lodging Group (HTHT) reported its quarterly results yesterday after the close, and they were solid, with revenues rising 11% in local currency terms, EBITDA (a measure of cash flow) rising 35% and earnings lifting a huge 74%. As reported earlier, the firm had an occupancy rate of 83.9% in the quarter, while total rooms operated were 335,900 at the end of March. Management also forecast second-quarter revenues up about 11%, similar to this quarter. HTHT had a shakeout this morning on the news, but quickly recovered and closed up strongly on the day. We’re staying on Buy, but expect some volatility near-term; if you want in, try to buy on dips of two or three points. BUY.
JD.com (JD) supplied its Q1 numbers on Monday before the market opened, and investors liked what they saw. JD gapped up from 36 to 38 on big volume and has now tacked on another point. Like any stock that has caught this kind of updraft, JD is extended from its 25-day moving average, which is back at 34.5. Either wait for a pullback or take a small position to get started, then average up if the stock continues higher. BUY.
LATAM Airlines (LFL) has pulled back all the way to its 50-day moving average (and back to our buy price), where it’s been trying to find support for the past three days. We’ll wait to see what Monday’s earnings report has to say before we make a decision. We’ll change the rating to Hold due to the stock’s weakness and the upcoming report. HOLD A HALF.
Melco Resorts (MLCO) briefly hit new highs after reporting earnings last Thursday, though a good-sized (and somewhat complicated) share offering gapped the stock down on Monday. Still, the dip is reasonable and MLCO is already recouping some lost ground. Macau still looks healthy, and this pullback has created a good buying opportunity. BUY.
Momo (MOMO) has gone essentially flat since the first week of April, trading mostly under resistance at 39 for almost five weeks. This has allowed the stock’s 25-day moving average to catch up, which could provide some lift. Or, it may be that MOMO will trade sideways until the company reports earnings before the open on May 23. We will keep the Buy rating for MOMO. BUY.
Pampa Energia (PAM) stumbled for four days at the end of April, dipping below its 25-day moving average. But the stock has rebounded nicely to within hailing distance of its April 11 high. This looks like a calm setup ahead of Pampa’s quarterly report on Monday. We’ll stay on Buy. BUY.
TAL Education (TAL) took a small breather after its April 27 earnings report, which was puzzling, given the company’s great numbers and strong guidance. But TAL got back on track quickly and has now pushed out to new highs. The stock has made a huge run since we bought it in late 2015, which allowed us to ride out the sizable correction in late 2016. Now the stock is showing no signs of slowing down. We will keep it rated Buy. BUY.
Tencent Holdings (TCEHY), our latest selection, has continued its advance, gapping up by a point on Tuesday. No word yet on when the company will report earnings, but the stock has been in a strong advance since late-December. TCEHY is choppy, so a little patience should let you get in on a pullback. BUY.
Vedanta (VEDL) has been in a choppy downtrend since the middle of April, falling from 16 to 14 in the process. We got some hard data on how things are going today as Vedanta reported record production of zinc, copper, aluminum and electric power. We will see if the good production news gets the stock back on track. If that doesn’t happen, we will likely just drop it. WATCH.
Weibo (WB) caught an express elevator up on May 4 and is trading in new-high territory. Since the stock has essentially traded flat since September 2016, we think there should be plenty of buying power here. But we also want to hold back until we see what the company’s earnings report next Tuesday (May 16, before the open) brings. Good news should bring a strong reaction, but we won’t jump the gun. HOLD A HALF.
Like a couple of other holdings, Yum China (YUMC) was hit by a two-day pullback (on May 4 and 5, which was the day of Yum’s earnings release) then righted itself and headed higher again. The little reset got the stock closer to its rising 25-day moving average. We will wait to fill our position until we see YUMC break to new highs. We’ll keep it rated Buy a Half for now. BUY A HALF.
