Cabot Emerging Markets Investor February 18, 2016
Paul Goodwin, Chief Analyst
WHAT TO DO NOW:
The Cabot Emerging Markets Timer has edged its way up to a new buy signal. While we want to be cautious until we get confirmation of this uptrend, we will increase our exposure slightly. We will fill our position in TAL Education, changing its rating from Hold a Half to Buy.
Market Environment
We have been enjoying an energetic uptick in stocks over the past few days. It’s a powerful move, although not yet decisive. If it continues, it will be very good news indeed. It has lifted stocks globally, including beaten-down Chinese issues, raising hopes for a durable rally. This is happening despite continued bad news on the Chinese economy, on global trade and European worries. If the market really is looking six months ahead, it’s liking what it sees, for now, at least.
The iShares MSCI Emerging Markets ETF (EEM) has pushed above its 25-day moving average and that average is just beginning to tick higher. By the letter of the law, this represents a new buy signal, but there are a couple of reservations. First, the Golden Dragon China ETF (PGJ) is not confirming the buy signal. Second, EEM still hasn’t gotten out to new five-week highs, which would be above 30.7.
We will honor this signal by filling out our stake in XRS. We think it’s prudent to give this nascent rally a couple more days to prove itself before putting a load of money back to work. Young rallies can be fragile, and we don’t want to overload one this early in the process. If we see confirmation that the bulls are really changing their minds about emerging market stocks, we will be ready. For now, we’ll be a little cautious.
The major indexes opened the day up, but drifted lower during the day, finishing with modest losses in the Dow and the S&P 500 but a 1% dip in the Nasdaq. At the close, the Dow was down 41 points (0.25%), the S&P 500 fell 9 points (0.47%), and the Nasdaq slipped 47 points (1.03%). The iShares MSCI Emerging Markets ETF (EEM) lost 18 cents (0.59%).
Recommended Stocks
Concord Medical Services (CCM 4.82)
was hit by the January 20 market trough and the February 11 dip, but is holding onto much of its December rally. Concord’s Q3 results came out on November 18, so we should expect to see Q4 results soon. We’ll keep CCM on the watch list. WATCH.Grupo Financiero Galicia (GGAL 29)
is sticking to the trading range that has contained it for almost four months. GGAL’s chart shows a mild rally on rising volume following last Friday’s quarterly earnings report, which is a good sign. If we get a new buy signal, GGAL will be a good, conservative stock to use to edge back into the market.
WATCH.
NetEase (NTES 152)
was sold in last week’s regular issue after a two-day wipeout on February 5 and February 8. The stock has rebounded a bit to its old support at 155. If you haven’t sold yet, this is a good opportunity.SOLD.
Seaspan (SSW 16)
took a small hit from the February 11 market slip, but quickly recovered the bulk of its January rally, and is now near the top of its recent trading range. There still hasn’t been an announcement of the company’s quarterly report dates, but Q3 results came out on November 2, so it’s got to be soon. We will hold SSW for both its price action and its generous dividend.HOLD.
Sibanye Gold (SBGL 13)
has had a couple of recent hiccups (February 9 and February 16), but that’s just an illustration of how closely it follows the movement of global gold prices. The company will release full-year 2015 earnings on February 25 (next Thursday), which will be an important second data point (beside the price of gold).WATCH.
TAL Education (XRS 50)
flirted briefly with all-time highs at 50 today as it enjoys the momentum from its recent rally on rising volume. XRS has been a strong stock in a weak market and today we’ll fill out our position by purchasing another half-sized stake and move the rating back to Buy.BUY.
Volaris (VLRS 20)
has caught a strong updraft, advancing strongly last Friday and continuing its advance on increased volume all the way to new all-time highs. This move parallels a rebound in the transportation sector. Much of the stock’s future is still riding on what investors think of the company’s upcoming quarterly earnings report, which will be released before the market opens next Monday (February 22). We will keep VLRS rated Hold, but if the reaction to earnings is good, you might consider a small position.HOLD.
YY.com (YY 55)
went into free-fall on February 14, slipping to as low as 42 before righting itself and closing at 48. Since that wipeout, YY has powered back to 55. While it’s nice to see the stock rebound, it’s still below all of its moving averages. YY.com will likely release its latest quarterly results in the first week of March.WATCH.
Stock | Date Bought | Price Bought | Current Price | Profit | Rating | |
| Concord Medical Services (CCM) | — | — | 4.82 | — | Watch | |
| Grupo Financiero Galicia (GGAL) | — | — | 29 | — | Watch | |
| NetEase (NTES) | 12/4/15 | 175 | 152 | — | Sold | |
| Seaspan (SSW) | 6/22/12 | 17 | 16 | -5% | Hold | |
| Sibanye Gold (SBGL) | — | — | 13 | — | Watch | |
| TAL Education (XRS) | 12/18/15 | 48 | 50 | 4% | Hold a Half | |
| Volaris (VLRS) | 9/25/15 | 15 | 20 | 38% | Hold | |
| YY.com (YY) | — | — | 55 | — | Watch |