WHAT TO DO NOW: The Emerging Markets Timer is still pointed up, despite the market’s recent consolidation. Our moves tonight are increasing our Buy recommendation for Alibaba (BABA) to a full position, lowering our rating of Telkom Indonesia (TLK) to Hold a Half and returning Weibo (WB) to a Buy a Half recommendation.
Market Environment
U.S. markets, as represented by the major stock indexes, have been trading mostly sideways since the middle of July. After Labor Day, it’s reasonable to expect the markets to get more energetic as big investors return to their monitors. Eventually, the Fed will goose rates a tick higher and people will stop obsessing about it. All in all, markets seem pretty healthy despite all the election noise, Fed rumblings and global conflict.
The markets dipped early and rallied late, finishing the day with mixed results. At the close, the Dow gained 18 points (0.10%), the S&P was flat and the Nasdaq rose 14 points (0.27%). The iShares MSCI Emerging Markets ETF (EEM) gained 0.28 points (0.77%) to finish at 36.81.
Recommended Stocks
Alibaba (BABA 97) gave back a few points from its August 11–12 gap up on earnings, but has now resumed its advance, bouncing from its post-earnings low of 93 to near 98, with some good volume support. There is continuing woofing about the sale of counterfeit goods on its marketplaces, but founder Jack Ma says that he’s working on the problem. BABA has clearly established itself as a favorite of institutional investors, who hold a rapidly increasing number of shares. The stock’s correction and recovery have made for a nice intermediate trend reset. We’ll buy another half position, increasing our recommendation to a full Buy. BUY.
AngloGold Ashanti (AU 17) was sold in last week’s issue, and the stock has continued to decline. There may be a bounce in gold prices soon, but a sustained rally will probably require some base-building. We will keep an eye on the stock and may get back in if we find a good, low-risk setup. SOLD.
China Lodging Group (HTHT 45) is still volatile and it’s still going up. The stock skipped up to 48 on August 29, but has relaxed back to below 45. The stock is a little calmer than it was during its wild intraday swings from August 15 through August 18 (earnings were released on the 16th), but it’s still a mover. The general trend is still up, so we’ll stay on Buy. BUY.
Line Corporation (LN 42) is experiencing some post-IPO choppiness. The stock dipped below its 25-day moving average today on slight volume, but it’s so new that it doesn’t have a 50-day average yet. We’ll keep our recommendation at Buy a Half. BUY A HALF.
MercadoLibre (MELI 174) has come back to life after spending three weeks digesting its August 5 earnings bounce. That bounce kicked the stock from 152 to 173, and the consolidation period pulled it only as low as 165, so yesterday’s bump up to 172 (on higher-than-average volume) looks like a solid resumption of buying interest. This makes last week’s decision to increase our holding to a full position look very good. BUY.
NetEase (NTES 216) has run into resistance at 216–218 since the middle of August. On the other hand, the stock has been riding its 25-day moving average higher since August 4, so there’s no cause for concern. We will be keeping an eye on that resistance, but will keep the stock on Buy. BUY.
New Oriental Education (EDU 41) was sold in last week’s regular issue. The stock’s correction that began in late July dropped it below its moving averages and pulled the price back to April levels. SOLD.
Silicon Motion (SIMO 51) went through a five-day correction from August 19 through August 25, prompting us to sell one-third of our position to book some profit and reduce the stock’s rating to Hold. Since the stock’s dip to an intraday low of 48 on August 25, SIMO has bounced back to its 50-day moving average at 52. There may be more volatility ahead, but the stock seems to have found its feet. We’ll keep the Hold rating on our remaining shares, at least until the stock can get back atop its 25-day moving average. HOLD.
TAL Education (XRS 61) took another downleg over the last week or so. Today’s advance has pulled XRS back to its 25-day moving average, but the 25-day has now dipped below the 50-day. We’re not much concerned with what some analysts call the “death cross” of the shorter-term average below the longer, but XRS is trading about where it was in late June and we don’t want to tie up our capital for too long and miss a stronger candidate. However, we still have a comfortable profit cushion, so we’ll keep the stock on Hold, while requiring that it get back on track in fairly short order. HOLD.
Telkom Indonesia (TLK 62) has continued its controlled correction and is now sitting right about where we bought it. But the stock hasn’t had a significant pullback since it blasted off in October 2015, so this isn’t entirely unexpected. With the stock decisively below its 50-day moving average (now at 63.5), we’ll shift the rating to Hold a Half. HOLD A HALF.
Tencent Holdings (TCEHY 26) has leveled off for a couple of weeks after a four-day missile launch that started on August 15. We’ve been expecting the stock to take a breather, and this period of sideways trading is the ideal cooling-off period. The stock is still well above its 25-day moving average, but we think starting a new position anywhere under 26 looks reasonable. BUY.
Weibo (WB 49) has clearly established itself as a favorite of institutional investors. The stock has a lengthening roster of ownership by whales and just keeps climbing. We always talk about letting your winners run, but after our position appreciated from our buy at 21 to near 43, we sold a third of our position in the August 10 issue and set the rating at Hold; the reason was that the stock had, after a multi-month rally moved out of trend on the upside. But since that change, WB has advanced from 43 to 49! With a couple of recent high-volume buying days showing admirable strength, we will put WB back on Buy, with the warning that a correction is inevitable and could come along at any time. But it just doesn’t make any sense for an aggressive growth advisory to stay out of this stock. So hold on to your remaining shares if you already own WB and look for a pullback and take only a half position if you’re just getting started. BUY A HALF.
Stock | Date Bought | Price Bought | Current Price | Profit | Rating | |
| Alibaba (BABA) | New | 97 | 97 | 1% | Buy | |
| AngloGold Ashanti (AU) | 7/1/16 | 20 | 17 | — | Sold | |
| China Lodging Group (HTHT) | 3/28/16 | 36 | 45 | 27% | Buy | |
| Line Corp. (LN) | 8/26/16 | 43 | 42 | -3% | Buy a Half | |
| MercadoLibre (MELI) | — | — | 174 | 2% | Buy | |
| NetEase (NTES) | 6/8/16 | 175 | 216 | 24% | Buy | |
| New Oriental Education (EDU) | 7/22/16 | 44 | 41 | — | Sold | |
| Silicon Motion (SIMO) | 4/22/16 | 40 | 51 | 27% | Hold | |
| TAL Education (XRS) | 12/18/15 | 48 | 61 | 26% | Hold | |
| Telcom Indonesia (TLK) | 7/1/16 | 62 | 62 | 0% | Hold a Half | |
| Tencent Holdings (TCEHY) | 6/24/16 | 22 | 26 | 16% | Buy | |
| Weibo (WB) | 4/8/16 | 21 | 49 | 136% | Buy a Half |