If Markets Hold Up ...

Global equities have recovered slightly from their January 20 low, but the momentum of the market is very much in play. With earnings season in high gear in the U.S., volatility among individual stocks is high. Markets are likely to remain touchy, as the Fed has essentially ruled out further rate increases for the year, which is an admission that economic growth rates are uncertain. China is still the biggest element of uncertainty in the global economic outlook, and will likely remain so through 2016.

The iShares MSCI Emerging Markets ETF (EEM) has actually fought its way back above its 25-day moving average, but that average is still trending down, which keeps the red light flashing for the Cabot Emerging Markets Timer. The next six trading days will see the worst of the January correction falling out of the 25-day moving average, so if markets hold up, we might get a new buy signal within a week or two. For now, we’ll stick with what our timing indicator is telling us, which is to remain cautious and curtail new buying.

The Shanghai Composite has been through four distinct phases in the last five months. First, it stabilized in September 2015 after the August global meltdown. Second, it rallied in October and early November. Third, it traded flat under resistance in November and December. Fourth, it corrected sharply in January. The Shanghai may have started putting in a bottom in the past five or six days, but it’s too early to tell. What’s clear is that big moves on the Shanghai Exchange can affect U.S. markets, and the world is paying close attention to the Chinese government’s efforts to stimulate its economy.

Just one of our holdings has reported Q4 results (it reacted very well), and two others have announced firm report dates. Those results are likely to be major factors in how our stocks move over the next month.

This is an excerpt from Cabot Emerging Markets Investor, which seeks to capitalize on the enormous potential in emerging market countries. Chief Analyst Paul Goodwin has been a researcher and writer for over 30 years and a member of the Cabot investment team since 2005.

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