WHAT TO DO NOW: Emerging market stocks have been attempting to find a bottom after a month of accelerating declines. The week has been fairly calm, with the iShares EM Fund (EEM) and many of our stocks showing some signs of basing. We are holding a very defensive 50% of the portfolio in cash, so will keep our ratings unchanged and make no moves in the portfolio this week.
U.S. markets continue to flounder as investors anticipate the fallout from a potential trade war between the U.S. and China (and most of our allies as well). The standard wisdom is that investors dislike uncertainty more than any other market condition, and there is a ton of uncertainty floating around right now.
Meanwhile, earnings season for U.S. companies is about to heat up, but most EM stocks won’t release Q2 results until August. That may be a good thing, as August is traditionally the slowest trading month in the market year. All those fund managers and high-net-worth investors can usually be counted on to lower activity in their portfolios as they go on vacation, returning in September to get their bets down for the remainder of the year. After an August of quarterly reports, this September period is worth paying special attention to for the insights it gives about how the whales are going to move for the last four months of the year.
The iShares EM Fund (EEM), which corrected at a very steady rate during March, April and May, went over the falls in June, dropping completely out of touch with its 25- and 50-day moving averages and sliding into oversold territory. EEM started a modest bounce on the last two trading days of June, but there hasn’t been any follow-through to the upside since then. We will be happy if EEM just hangs around between 42 and 43 for a while, building a new base. But the message from the Cabot Emerging Markets Timer will likely remain solidly negative for a while yet.
The Golden Dragon ETF (PGJ), whose positive action during May and the first half of June contradicted the negative reading from EEM, declined steeply starting June 19, and fell below its 50-day MA on June 25. PGJ may have found a bottom at 45, but it, too, will need some time to get back on track toward a Buy signal.
The markets performed well today, with the Dow up 181 points (0.76%), the S&P 500 gaining 23 points (0.86%) and the Nasdaq adding 84 points (1.12%). The iShares MSCI Emerging Markets ETF (EEM) was narrowly lower, down 0.11 (0.26%) to close at 42.82.
51Job (JOBS) was put on Hold in last week’s issue, as the stock’s June correction finished with a high-volume down day on June 27. Interestingly, JOBS found support right at its April resistance level. Since that big dip, JOBS has held its own, but will likely need some time to re-base. We will let our profit cushion keep us in the stock for now, but a further slip toward 90 will likely have us pulling the plug. HOLD A HALF.
Alibaba (BABA) hit an air pocket for five days in June, but appears to have found support in the mid-180s. This keeps the stock in the trading range it has occupied since November 2017, which is frustrating. But we look at the stock’s May breakout to 210 as the more important indicator of future strength. BABA got an upgraded price target from a Morgan Stanley analyst on Tuesday (to 240). We’ll keep the stock rated Hold until the market is healthier and BABA shows it’s getting going again. HOLD.
Autohome (ATHM) was hit hard by sellers over the first three days of last week, with trading volume rising to a peak on Wednesday. After a decline from near 120 in mid-June, ATHM found support around 97 and has bounced back above 100. We have great faith in the strength of Autohome’s story, but it’s not a good idea to regard any stock as a can’t-fail proposition. We’ll keep the stock rated Hold. HOLD.
The big damage to BeiGene (BGNE) was done before the middle of June, but the stock took a smaller hit last week as well. On the positive side, BGNE has traded sideways for the last five days in a very tight range (151 to 155) with declining volume. The stock should be immune to any news that isn’t about clinical trials, so we’re fine with a Hold rating for our half position. HOLD A HALF.
While GDS Holdings (GDS) corrected from 46 to 37 in the middle of June, the stock has bounced off its 50-day moving average and is holding in its late-May/early-June trading range. There hasn’t been any news to dent the company’s story and the stock looks okay for some light buying as long as no higher volume selling appears. BUY.
iQIYI (IQ) ran from 16 in May to a close at 44 on June 20, so its pullback to 31 hasn’t exactly been a surprise. The advance has been so strong that IQ is still well above its 50-day moving average (now at 27). With our market timer negative, we will keep the stock rated Hold a Half, but if it can continue to trade sideways with support at 31, we will also take that as a show of strength. HOLD A HALF.
JD.com (JD) has been exceptionally volatile since the start of June, soaring from 35 to 45, then pulling back to 38 in just seven trading days. What we would like to see from JD, which we regard as a company with great fundamentals and excellent allies in the Chinese e-commerce wars, is a re-basing over support at 38, then a rally on volume to indicate that investors are changing their minds about the stock. WATCH.
Noah Holdings (NOAH) looks terrible! The stock has given back all of its May gains and has been correcting at a progressively steeper angle since June 11. We will keep it rated Watch because this kind of negative volatility can reverse higher if there’s a piece of good news. Right now, having no skin in the game with NOAH feels good. WATCH.
ZTO Express (ZTO) has been fought over by buyers and sellers since its late-May gap up from 19 to 21. The stock’s mid-June pullback filled that gap and the stock rallied back to 20.8 on Wednesday and corrected back to 19.5 today. ZTO doesn’t look especially vulnerable to economic damage that might result from a U.S. vs. China trade war, but investors are feeling a little queasy about Chinese stocks right now and ZTO is reflecting that. The damage hasn’t been large, and ZTO is still above its 50-day MA. We’ll keep it rated Buy a Half. BUY A HALF.
