EB Weekly Portfolio Report - October 6, 2019

Portfolio Rules and Objectives

Here are the common traits and objectives of each portfolio:

• There are 10 leading stocks from 10 leading industries in each portfolio (at the time of selection)
• They are held for an entire 90 day period, with no stops in place
• Every stock will be held through ONE earnings report
• The expectation is that relative winners will carry the portfolio to outperformance
• They are all entered into as of February 19, May 19, August 19, and November 19 (these dates are used as we are generally past the majority of earnings reports by these dates)
• Primary objective is outperform the benchmark S&P 500

Here are several considerations for EB members:

• I would expect the Aggressive portfolio to be the riskiest, followed by the Model portfolio, and then the Income portfolio
• The Income portfolio stocks will all pay dividends, with the expected average dividend yield to be at least 1.5%
• Drawdowns (losses) should be much milder on the Income portfolio, with much more volatility on the other two
• You should own or trade these stocks in whatever manner is most comfortable for you; while we buy all 10 stocks as of the dates identified above, feel free to trade certain stocks or wait for pullbacks if the stocks are overbought
• We have no idea what risk each member is willing or able to take. We are not registered investment advisors so be sure you understand the risk you take.
• EarningsBeats.com shareholders/employees may own all or some of the portfolio stocks from time to time.

Weekly Summary

Benchmark S&P 500:

The S&P 500 lost 9 points on the week, which seems rather uneventful - until you look at a 10 day 30 minute chart:

From Tuesday's intraday high to Thursday's intraday low, the S&P 500 lost nearly 5%. In two days! The culprit? An ISM manufacturing report that came in way below expectations and well below 50, suggesting economic contraction. But much of that was recovered by Friday's close as we saw a big rally across most sectors and industries in the market.

Do you recall the possible channel that I suggested on the S&P 500 weekly chart last week? Check it out after last week's low hit:

I didn't extend the channel lines that I drew last week, but if you extend that bottom uptrend line, you'd find that it just about intersected that line perfectly before the rally kicked in. It's one reason why we alerted 4 stocks on Thursday and Friday after issuing few alerts the past several weeks. From a trading perspective, the reward to risk began looking very strong after the mid-week selling took place.

However, our portfolios aren't really concerned with short-term back and forth action, so let's review what happened given all the volatility that we saw.

Model Portfolio:

The Model Portfolio gained 0.75% last week, outperforming the benchmark S&P 500. It cut into the quarter's underperformance to date, although the performance since inception remains very strong:

Here's a recap how each stock in the Model portfolio performed last week:

ROKU and AYX, two highly volatile technology stocks, had contributed to a lot of overall weakness this quarter in the Model portfolio, but last week were primarily responsible for its outperformance. TER, a semiconductor, not only performed well, but also broke out to another all-time high:

TER is one of the best semiconductor stocks currently and should greatly benefit if semiconductors ($DJUSSC) can clear both absolute and relative resistance (red arrows above).

Aggressive Portfolio:

The Aggressive Portfolio had a very strong week, gaining 1.72% and recovering a full 2 percentage points vs. the benchmark S&P 500. This portfolio is extremely volatile and last week was no exception. Here's an inception-to-date chart:

The strong recovery last week was in large part due to the rebound in growth stocks (IWF) vs. value stocks (IWD). Last week, I highlighted the IWF:IWD ratio and pointed out that its rapid decline was hurting our growth-oriented portfolios. Well, last week we saw a return to growth stocks and that's quite evident on this IWF:IWD chart:

The blue circle shows that nice rally in IWF shares, relative to IWD shares. That resulted in many of our high growth stocks having solid weeks as can be seen here:

Nearly every stock outperformed with the primary exception being EVER, an internet stock ($DJUSNS). The DJUSNS didn't have a great week last week, although it did rally the last two days. If you scroll up and look at the individual performance in the Model portfolio, you'll see another internet stock, TWTR, that underperformed.

Here's the current outlook for EVER:

After the huge move higher in EVER after its latest quarterly earnings report, we've seen selling, but no closes back beneath 19. Friday's intraday low hit 19.12 before some buying resumed. I'd really like to see 19 hold as support. Otherwise, it could be a quick trip down to test the top of gap support near 17. Note also that the DJUSNS bounced off support near 1700 and EVER is currently testing its relative support levels vs. the DJUSNS and the SPX. This would be a great spot for a reversal. I look for EVER to be either the best performing stock in the Aggressive portfolio next week, or feel the effects of a breakdown beneath 19. I'd lean more toward the former.

Income Portfolio:

While the inception-to-date returns are not as strong on the Income portfolio as they are on the other two, an argument could be made that this has been the best portfolio. Why? Well, first look at the much lower volatility associated with this group:

We're very close to breaking out to another fresh new high. While both the Model and Aggressive portfolios were hurt hard by the shift from growth to value stocks, that hasn't been the case for the Income portfolio. It's been somewhat insulated from the high volatility we experienced during September.

As for individual performance last week, again you can see from the table below that there isn't the same major swings in price in this portfolio's component stocks:

AAPL made a big breakout and, I have to say, computer hardware ($DJUSCR) is strengthening and becoming one of the top industry groups. Check this out:

AAPL looks very solid and I expect it to have quite a run into earnings in a few weeks. I expect very strong quarterly results from AAPL based on the way it's trading and the way computer hardware, in general, is trading.

I mentioned last week that SBUX would likely continue to underperform based on its breakdown and that's what we saw last week:

I expect SBUX to trade in this 84-90 range for awhile. Failure to hold 84 would suggest a test of 78.50-79.00 support and, given the underperformance in SBUX already, I really don't want to see the relative strength lines here grow much weaker.

Summary

It was good to see a rebound in the portfolios last week and a resumption of the growth vs. value (IWF:IWD) mentality that had previously been driving stock prices higher. That ratio is one clear indicator that we should follow. While I wouldn't expect our portfolios to be 100% positively correlated to that ratio, I do think it's a major factor in our overall performance.

I wish everyone a great week ahead!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."