Note: This update is being prepared at 10:30 Wednesday morning (November 22) so I can head home and put on my apron for the preparation of pumpkin pies. I wish you all a Happy Thanksgiving, and I know that the long-running bull market in Chinese stocks is something I’ll be giving special thanks for.
WHAT TO DO NOW: The iShares EM Fund (EEM) has rebounded sharply and is well above both its 25- and 50-day moving average. That keeps the Buy signal in the Cabot Emerging Markets Timer shining brightly. We have one change tonight: We’re putting Jupai (JP) back on Hold.
It’s a short week (markets will close on Thanksgiving and will only open for half a session on Friday) and there’s not a lot of news pushing the market. The standard fears remain the same and the markets are pretty much sailing along in spite of them.
After spending one day (November 15) under its 50-day moving average, the iShares emerging markets ETF (EEM) has bounced back with real energy. Tuesday’s high-volume action pushed EEM comfortably ahead of its rising 25-day and the situation looks great. PowerShares Golden Dragon ETF (PGJ) has also pushed out to new highs, confirming the health of Chinese ADRs. Our Buy signal is in full strength.
Emerging markets earnings season is in its final days. Sociedad Quimica y Minera’s report will come after the close tonight and China Lodging, the last of our holdings to report, will release its Q3 report next Tuesday, November 28 after the close.
The markets are down slightly in the morning session, but don’t look to be doing anything that will alter the basic uptrend they have been enjoying. At 10:30 a.m., the Dow was down 27 points (0.11%), the S&P 500 lost 2 points (0.07%) and the Nasdaq was flat. The iShares MSCI Emerging Markets ETF (EEM) was up 0.04 points (0.07%) at 47.73.
Alibaba (BABA) has had a distinctive chart since the middle of August. The stock has followed every new high with a sizable pullback, followed by a run to a new high. Since both the highs and the lows keep rising, it’s a bullish pattern, even though the October low took the stock below its 50-day moving average. BABA’s latest recovery has pushed the stock to a new high above 190 (after bouncing again off the 50-day on November 15), so we’re inclined to see the ongoing battle between buyers and sellers as interesting rather than threatening, although if the stock is really healthy, we expect it to act more like a leader. It’s interesting that Alibaba is following Amazon in moving into brick-and-mortar food retailing—Alibaba has taken a $2.9 billion stake in a Chinese grocery store/department store supermart. We’ll keep BABA on Buy, but that may change if it doesn’t show more life soon. BUY.
Baidu (BIDU) has had more than three weeks to recover from its October 27 post-earnings gap down from 261 to 239. The stock made a shakeout move to 234 a week ago, but has started to show signs of life. Wednesday’s strong performance got BIDU back in contact with its moving averages, which is a good sign. We’re not ready to recommend buying quite yet—a move above 150 with some volume support would provide a clear signal—but we’re happy to see the progress. HOLD.
China Lodging Group (HTHT) has been in consolidation mode heading into the company’s earnings report on November 28 after the close. Analysts are looking for $474 million in revenue and 21 cents in earnings. We put the stock on Hold because of the length of its flat trading over support in the low 120s. As usual, we will let the stock’s reaction to earnings guide how we handle it. HOLD.
Grupo Supervielle (SUPV) took a significant dive after releasing its Q3 results on November 8. The strong numbers and low trading volume led us to recommend buying the correction and the move has paid off. SUPV has executed a V-shaped correction and recovery and has regained its pre-earnings price level. We will keep it on Buy. BUY.
Our half position in Jupai Holdings (JP) has been a hard stock to hold onto, even dipping briefly to its 50-day moving average on Tuesday. We are cutting the stock a lot of slack because it’s still young and the initial reaction to its earnings report on November 13 was positive. Our faith in the company’s fundamentals (and its bargain 11 P/E) make us want to hold on here. We will put JP back on Hold and will cut it loose if it closes under 20. HOLD A HALF.
Sina.com (SINA) found support at 104 in late October and last week, but after a long decline that really started in mid-September, we decided to cut it loose in last week’s issue and buy Weibo instead. SINA has begun to recover, but WB is much stronger, so the decision looks like a good one. SOLD.
Sociedad Quimica y Minera (SQM) had a worrying day on Monday, slipping to support at 54 on heavy volume. Tuesday’s bounce was hopeful, but hasn’t fully lifted the stock back to its October trading range. All the news of a potential equity position being taken by Rio Tinto or Sinochem is interesting, but we will make the decisions on SQM based on the chart. The company will report its latest results after the close today, with analysts looking for $526 million in revenue and 42 cents per share in earnings (both a little higher than they were two weeks ago). We will have to wait for the shortened session on Friday to see the reaction. We will hold our half position until we see the fallout. HOLD A HALF.
It’s been four weeks since TAL Education (TAL) gapped down after its October 26 earnings report and the stock has bounced a few points and dipped again. We know there’s a sound story here, with big earnings growth forecast for next year. We’re willing to be patient with TAL while it repairs its late-October gap down, but won’t hesitate to cut it loose if it slips below support at 26. HOLD A HALF.
Tencent Holdings (TCEHY) made headlines recently when its market cap passed Facebook’s. That’s not really a reason to buy, but the stock’s continuing rally is. TCEHY has soared from 50 to 56 on enormous rising volume over the past week (before today’s pullback), which is very positive for a stock that trades over-the-counter. There will have to be a pullback at some point, because this increasing angle of advance isn’t going to last. But I wouldn’t want to guess when it might come. If you’re not in, you can take a small position to get started. BUY.
Weibo (WB) went through a routine correction from the middle of September until late October, when it got moving again with some real energy. A burst of buying volume on November 7, 8 and 9 pushed the stock to new highs and it has followed through since then. WB has been alternating up and down days, but the up days are stronger. You can use one of the down days as a buying opportunity. BUY.
YY Inc. (YY) enjoyed a great earnings spike higher on November 15 and has now pushed out to new all-time highs. Look for temporary weakness as a buying opportunity. BUY.
ZTO Express (ZTO) appears to have weathered its November 13–14 correction and rebounded from its rising 25-day moving average heading into earnings on Monday. The reaction to earnings has been positive, but not overwhelming. We will stick with our recommendation to buy a half position until the stock makes a breakout move toward 18. We have a lot of confidence in the scale of ZTO’s opportunity in China and will be ready to average up when the stock tells us it’s time. BUY A HALF.
[author_ad]