EB Portfolio Report - Sunday, October 13, 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 to 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:

After a rough start to the week that included a Tuesday meltdown beneath 2900, the S&P 500 rallied throughout the balance of the week, finishing higher by 0.62% on the week. It was an impressive rally with a low that tested the lower uptrend line in a potential bullish ascending triangle continuation pattern:

Breaking above the three week downtrend line and both the 20 day EMA and 50 day SMA also were very encouraging short-term signals, but we'll need to remain above them next week or we'll simply be back in the frustrating and volatile shorter-term consolidation phase.

Model Portfolio:

The Model Portfolio had a very solid week, gaining 2.61% last week, easily outperforming the benchmark S&P 500. It continued to chip away at the underperformance experienced earlier in the quarter when the market turned defensive and value stocks were preferred over growth stocks:

The Model portfolio also stretched its "since inception" lead over the benchmark S&P 500 to 46.13% vs. 10.39%. Those are results over the past 11 months, since we began the Model portfolio on November 19, 2018.

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

ROKU easily had the best week in terms of percentage gain, but I felt the gains in SPGI may have been more impressive as the company is back to outperforming its specialty finance ($DJUSSP) peers:

The blue circles show improving relative strength, and technical conditions are better, but there's definitely more work to do here. The most important short-term resistance is close to 258. A close above that level would be short-term bullish, and an increase in volume would confirm that bullishness.

Aggressive Portfolio:

The Aggressive Portfolio underperformed the benchmark S&P 500, but did have a strong Friday. Unfortunately, this portfolio still managed to drop 0.88% on the week, losing further ground to the S&P 500. The Aggressive portfolio is extremely volatile and the volatility was on display once again last week. The drop in early-October seems to have marked an important low on the chart. Here's an inception-to-date chart:

Here's how the individual stocks in the Aggressive portfolio performed last week:

Only 2 of the 10 stocks gaining during an up week for the benchmark is disappointing. CECO, the worst performer last week, is the only stock in the portfolio that I believe is broken. I mentioned that a couple weeks ago and things really haven't improved. Of the others, the three that have struggled that need to reverse are as follows:

EVER:

After its last earnings report, EVER soared and subsequent selling never really took EVER much below 19. We saw a reversal from that level last week and continuing strength from here could really help EVER lift the Aggressive portfolio. It has the ability to move very quickly back to the upside and I'm certainly not giving up on internet stocks ($DJUSNS) as they typically love the month of October seasonally.

EVTC:

This one is teetering and really needs to clear that 20 day EMA. Trending lower and failing at 20 day EMA tests is not a good look technically. The financial administration ($DJUSFA) have struggled to gain any ground against the S&P 500, similar to April and early-May. Let's hope this current relative consolidation ends in similar fashion.

ENPH:

ENPH had a solid week last week, but that 20 day EMA remains an obstacle and the renewable energy stocks ($DWCREE) moved to another recent relative low vs. the S&P 500. I want to see interest pick up in the group and ENPH to break decisively above its 20 day EMA. Perhaps next week will be the week.

Income Portfolio:

The Income portfolio tried to keep pace with the benchmark index, but came up a tad short, gaining 0.28% on the week. Still, this portfolio has been much less volatile than the other two portfolios and remains very close to breaking out to another high:

Here's how the individual stocks in the Income portfolio performed last week:

AAPL really carried the portfolio on its shoulders, while we had weakness in KO and HSY. WMT closed at a new high and could remain a strong performer for the portfolio next week. OMF provided leadership, but could struggle if it can't clear its 20 day EMA. It had moved above it on Friday, but reversed late in the day and failed to close above it. A potential reversing doji (a candlestick where the opening and closing prices are the same or close to the same) printed at that moving average after a brief uptrend could be problematic:

OMF would like to see money begin rotating more heavily back into consumer finance ($DJUSSF). OMF has maintained decent looking relative strength vs. its peers, but could use a move higher in the DJUSSF to help aid its recovery.

Summary

The Aggressive portfolio remains challenged, but hopefully that changes as traders begin looking towards upcoming earnings reports. These stocks are very aggressive and can move higher just as quickly as they moved lower in August/September. The Model portfolio continues to regain much of the momentum that it had lost previously. Another good week or two and maybe, just maybe, we'll see the Model portfolio move past the benchmark S&P 500 for the quarter.

The Income portfolio continues to do what it does best - reduce volatility and outperform, especially when we add dividends to the mix, which are ignored in all of our calculations.

I wish everyone a great week ahead!

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."