WHAT TO DO NOW: The Emerging Markets Timer is technically positive, but the intermediate-term trend remains mostly neutral. We’re recommending taking a half position in TCEHY, as the stock’s strength is too much to ignore, but we’re also going to hold onto a 25% cash position.
Market Environment
It’s a little ridiculous that the entire investing world is holding its breath waiting for results from the Brexit vote in Great Britain, but it’s clearly the case. There is no unanimity about the consequences of a vote to leave the E.U., but investors seem prepared to see a vote to stay in as a positive thing. We’ll just be glad to get the vote behind us so we can get a better sense of what markets want to do.
The iShares MSCI Emerging Markets ETF (EEM) is holding nicely above its 25- and 50-day moving averages, but the reality is that EEM has been pinned down under resistance at 35 since April. We have a green light from the Cabot Emerging Markets Timer, but not a very enthusiastic one. The Brexit uncertainty is probably the culprit here as well.
The markets opened strong and stayed up all day, including a sharp rally in the last half hour. All sectors reported gains and the major indexes finished the day with gains of over 1% At the close, the Dow gained 229 points (1.29%), the S&P 500 rose 28 points (1.33%), and the Nasdaq added 77 points (1.59%) The iShares MSCI Emerging Markets ETF (EEM) rose 0.82 points (2.42%) to finish at 34.76.
Recommended Stocks
Anglogold Ashanti (AU 16)
is trading sideways in a narrow range, essentially tracking the recent price fluctuations of gold, which has been flat since the beginning of March. AU is doing exactly what it’s supposed to, and if we see evidence that gold is once again appealing to investors, we will use Anglogold Ashanti to play it. For now, we will stay on Watch. WATCH.
China Lodging Group (HTHT 36) came perilously close to falling through its May resistance, but has gotten back on track with four days of gains. The stock is now trading right on its 25-day moving average, which is falling slightly. It’s not an ideal situation, but with the stock’s correction going on for around 11 weeks, we should be seeing a make-or-break point soon. Resistance at 33 is still the line in the sand. HOLD.
Credicorp (BAP 153), which traded flat from mid-April through the end of May, has been flirting with new-high territory around 155. Investors are still making up their minds about what Pedro Pablo Kuczynski’s win in the Peruvian presidential runoff election will mean for the country’s economy. BAP corrected substantially on June 10 when the result was announced, but the stock is acting fine now. We’ll stay on Buy. BUY.
Ctrip.com (CTRP 41
) was sold in last week’s issue after investors bailed out ahead of the company’s earnings report. CTRP has bounced slightly since then, but we see this rebound as a move to sell into, not a reason to second-guess the sell. SOLD.
NetEase (NTES 173) got caught in the general decline of Chinese ADRs from June 10 to June 17. But the stock has rebounded nicely and never came close to tagging its rising 25- and 50-day moving averages. With NTES having a very good day today, we’ll stay on Buy. BUY.
New Oriental Education (EDU 41) had one very bad day on June 8, when it slid from 43 to 39 on slightly elevated volume. But after spending a few days under its 50-day moving average, EDU has climbed back to its May trading range. It’s not out of the woods yet, but the stock remains on our Watch list, which is where we will keep it until we get either a decisive breakout from the Emerging Markets Timer or a breakout from EDU itself. WATCH.
Seaspan (SSW 15) had a very bad day on May 24 after a large secondary share offering, but worked its way steadily higher for two weeks after that news. Another slip on June 13 and 14 has kept SSW trading in a range close to its May 24 low, but it seems to have strong support at 14.5. Some shippers are trying to negotiate lower charter rates with shipping companies, but Seaspan has thus far resisted even talking about the issue. If it can make that stick, the company’s cash flow should remain steady. We’re keeping an eye on SSW, but to this point, we’re happy to keep it (and its generous 10+% dividend) on Hold. HOLD.
Silicon Motion (SIMO 46)
has leveled off its advance since the beginning of June, but is hanging above its moving averages. This pause in the stock’s advance should offer opportunities to start a position between 44 and 45. BUY.
TAL Education (XRS 57) has found support between 52 and 53 during June, and has advanced strongly this week toward the top of its two-month trading range. The stock’s recent moves have paralleled the improvement in EM and ADR indexes. We would still like to see XRS rally past 59 before we put it back on buy. We’ll Hold for now. HOLD.
Tencent Holdings (TCEHY 23) has been in a long-term uptrend for years. But after tagging 22 in April 2015, the stock got whacked by the downtrend that ended with the remarkable August 2015 meltdown. TCEHY has been working its volatile way higher ever since, and it has finally overtaken its old high at 22. We’re still a little concerned about the stock’s volatility, but we can’t ignore its power. Tencent Holdings is consistently in the headlines making investments and alliances with other players in the Chinese online universe, and we need to get a toehold in the stock. So we are recommending buying half a position in TCEHY. There’s risk here, but also lots of upside should the overall market get its act together. BUY A HALF.
Weibo (WB 28)
has dipped a couple of points from its June 7 high at 29.5. This looks like a reasonable consolidation, and the stock should get support when its rising 25-day moving average (now at 26.4) catches up. We will keep the stock rated Buy. BUY.
Stock | Date Bought | Price Bought | Current Price | Profit | Rating | |
| AngloGold Ashanti (AU) | — | — | 16 | Watch | ||
| China Lodging Group (HTHT) | 3/28/16 | 36 | 36 | 0% | Hold | |
| Credicorp (BAP) | 3/11/16 | 129 | 153 | 19% | Buy | |
| Ctrip.com (CTRP) | 2/26/16 | — | 41 | — | Sold | |
| NetEase (NTES) | 6/8/16 | 175 | 173 | -1% | Buy | |
| New Oriental Education (EDU) | — | — | 41 | — | Watch | |
| Seaspan (SSW) | 6/22/12 | 17 | 15 | -15% | Hold | |
| Silicon Motion (SIMO) | 4/22/16 | 40 | 46 | 14% | Buy | |
| TAL Education (XRS) | 12/18/15 | 48 | 57 | 18% | Hold | |
| Tencent Holdings (TCEHY) | — | — | 23 | — | Buy a Half | |
| Weibo (WB) | 4/8/16 | 21 | 28 | 33% | Buy |