EB Weekly Portfolio Report - Sunday, February 2, 2020

Upcoming Earnings Reports (New Feature)

The following companies will be reporting earnings this week and they're a component of one of our portfolios:

Monday, February 3: None

Tuesday, February 4: DIS, CMG, RL, BOOT

Wednesday, February 5: RAMP

Thursday, February 6: FTNT

Friday, February 7: None

PLEASE NOTE: The above companies were provided after scanning the Zacks Earnings Calendar. My research is limited to what Zacks provides and I also can make a mistake from time to time, so please check for earnings dates for all companies that you own. We do hold our portfolio stocks through one earnings report, but every EarningsBeats.com member must make their own investing/trading decisions about holding stocks into earnings reports as it's the most volatile (risky) time to own a stock.

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 generally no stops in place (KMX and UTHR were exceptions)
• Every stock will generally 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 CC (Character Change, formerly Value portfolio) and Aggressive portfolios to be the riskiest, followed by the Model portfolio, and then the Income portfolio
• The CC portfolio is a new breed and is much different from the others; it's quite diversified, but how it ranks in volatility among the four remains to be seen - I would anticipate high volatility and that's certainly what we've seen in its first two months.
• 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 more volatility expected on the other three; please review inception-to-date charts to gain an idea of volatility associated with each
• 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. Please consult your financial advisor.
• EarningsBeats.com shareholders/employees may own all or some of the portfolio stocks from time to time.

Snapshot

Here's a weekly recap:

The action on Thursday and Friday really had a major impact on the Model, Aggressive, and CC portfolios. The combination of (1) underperformance in small and mid cap stocks, (2) the significant drop in semiconductors ($DJUSSC, -6.73%) for the week, and (3) the "buy on rumor, sell on news" earnings mentality contributed to an awful week overall for the benchmark S&P 500 and our portfolios. The Income portfolio did manage to outperform a bit, but the Aggressive portfolio had its worst week since inception.

Weekly Summary

Benchmark S&P 500:

The S&P 500 ran into a wall of resistance last week as that benchmark index fell 2.12% on the week. Our warnings have been well-documented, including an impromptu webinar two weeks ago to discuss a plethora of warning/topping signs. That's led to the following break of 3-4 month short-term channel support and now opens the door to a bigger channel that could take shape:

RSI has fallen to 43. A break down to 30 would be much more indicative of consolidation than a trend. Unless we see the 50 day SMA, currently at 3211, hold as support, the odds become much greater that we'll see more volatility weakness ahead.

I will say this, however. The media is blaming last week's market weakness on the coronavirus. While the virus is most definitely a health risk and a big deal, it's a convenient, fear-mongering strategy to drive a larger audience for media outlets. While there's a clear and direct economic impact to some industries and companies (think airlines), I don't believe the stock market fell last week due to the coronavirus. I think it was heading lower anyway and the media found a topic to cling onto that would drive ratings.

Model Portfolio:

The Model portfolio had a rough week, losing 3.04% for the week. Here's the updated inception-to-date chart of the portfolio:

Here are how the Model portfolio component stocks performed last week:

ROKU continued its volatile ways and is now back close to key price support in the 118-119 area. AMAT followed the big drop in semiconductors, but remains technically-healthy in my view. ITT has been losing relative strength and is the only stock in the Model portfolio, other than ROKU, that really appears challenged at this point.

Aggressive Portfolio:

The Aggressive portfolio was under pressure last week, tumbling 5.69%. Here's the Aggressive portfolio chart since its inception on May 19, 2019:

Here are how the Aggressive portfolio component stocks performed last week:

All 10 component stocks fell last week, but the big blows came from APPS, despite a software group that really didn't perform that badly. I'll be honest, I'm worried about APPS upcoming report as its relative strength has really tumbled. Technically, it's imperative that APPS hold onto its October price support at 6.00. AMKR fell harder than the semiconductor group did as a whole, but many semis were hit hard. Gap support at 11.08 is the level where I'd look for a reversal. CROX seemed to drift lower with the footwear industry ($DJUSFT). Its relative strength remains quite strong and the volume that accompanied last week's selling was light to moderate. I'm certainly not ready to give up on CROX.

Income Portfolio:

The Income portfolio actually outperformed the benchmark S&P 500, despite losing 1.58%. Here's a look at the inception-to-date chart:

Here are how the Income portfolio component stocks performed last week:

What a difference one week makes. INTC was soaring last week after an incredibly strong earnings report, then found itself in the middle of an industry-wide selloff this week after more powerful results were reported in the space. None of that mattered as semiconductors clearly underwent a "sell the news" adjustment last week. RTN fell back after its quarterly report last week, as did AMGN and DOV. Overall, however, this group held up quite well given the sell-first mentality of last week.

Character Change (CC, formerly Value) Portfolio:

The CC portfolio loss of 4.00% was the second week in a row for such losses (-4.10% last week). Here is the inception-to-date chart since November 19, 2019:

Here are how the CC portfolio component stocks performed last week:

Adding injury to insult last week was watching UTHR and KMX lead their portfolios' performance last week. Of course, those two stocks were the only two that we've placed stops on since the inception of our portfolios. Both are now trading at or near their highest levels since they were selected. I blame it on Murphy's law: Anything that can go wrong will go wrong. Because they were stopped out, their rebounds have not been reflected in the results of our portfolios - frustrating indeed!

Energy has tumbled recently and MUR has not escaped that major bout of sector selling. The weakness here, though, can't be blamed on MUR. 6 of the component stocks fell at least 5% last week. As I've said before, I'm not giving up on the strategy of this portfolio, but the relative failure of small caps and mid caps have really added a level of volatility that I wasn't expecting.

Summary

Thanks to everyone that sent me an email last week, responding to a few changes that I'm considering for next quarters' portfolios. Most of the responses favored all of my discussion points. We're in the midst of backtesting the idea of entering multiple times into positions as a way to lower average cost and increase portfolio returns. We'll have more on that later during the February 19th "Top 10 Stocks" webinar, where we announce the 10 equal-weighted stocks for each portfolio.

Keep in mind that our portfolio strategies are designed for those investors/traders that want to potentially benefit from short-term relative strength, but don't want to actively trade. Members that want to actively trade these portfolio stocks - by all means, do it. So while our portfolios won't respond to short-term market warnings like the ones discussed at our webinar a couple weeks ago, you should feel free to do whatever feels most comfortable in your own individual situation.

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."