EB Weekly Portfolio Report - Sunday, July 26, 2020

Tom Bowley - July 26, 2020

Upcoming Earnings Reports

According to Zacks.com, the following companies will be reporting earnings this week and each is a component of one of our portfolios:

Monday, July 27: None

Tuesday, July 28: AMGN, DXCM, MASI

Wednesday, July 29: PYPL, SHOP, WING, WERN, MTSI

Thursday, July 30: AAPL, AMZN, LLY, VRTX, EA, SGEN,

Friday, July 31: 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, some of these were changed for our May 19th "draft" day recently (changes for the May 19 to August 19 quarter are in bold italics):

We have removed the Character Change portfolio and added a new Strong AD portfolio
There are 10 leading stocks from up to 10 leading industries in each portfolio (at the time of selection). Generally, there will only be one stock per industry group, but there could be exceptions.
They are held for an entire 90 day period, with no stops in place. We strive for consistency, transparency, and simplicity in our portfolios. EB.com members may hold these stocks for the entire 90 days, trade them, use stops, etc., but for purposes of our calculation, we will make no exceptions to our "buy and hold for three months" strategy.
Every stock will generally be held through ONE earnings report
The expectation is that relative winners will carry the portfolio to outperformance
They will all be entered into as of close on Tuesday, May 19th; members may choose to try to time better entries, but EB.com will "purchase" as of May 19th's closing price
Primary objective is to outperform the benchmark S&P 500

Here are several considerations for EB members:

I would expect the Strong AD and Aggressive portfolios to be the riskiest, followed by the Model portfolio, and then the Income portfolio
The Strong AD portfolio will be selected from a combination of rising accumulation/distribution lines and SCTRs above 80 at the time of selection. It will be our only portfolio that does NOT require a revenue and EPS beat in its most recent quarterly earnings report
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 below to gain an idea of the volatility associated with each
I believe the larger drawdown on the Income portfolio last quarter was an anomaly occurring as a result of the pandemic as many defensive, higher-yielding companies uncharacteristically underperformed during a market decline.
You should own or trade these stocks in whatever manner is most comfortable for you; while we will buy all 10 stocks in the manner 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.

Weekly Snapshot

Here's a weekly recap:

All of our portfolios underperformed last week, but honestly not by that much considering how much they outperformed during the recent period of strength.

Weekly Summary

Benchmark S&P 500:

The S&P 500 lost 0.28% last week, failing to hold onto 3232 support in the process.

It was another week of rotation from growth to value stocks, except this time the value stocks were not strong enough for the S&P 500 to gain ground for the week. We began the week on a very positive note, but everything deteriorated over the balance of the week. On the S&P 500, we broke above the 3232 resistance from June 8th, but failed to hold that breakout level. While it's difficult to predict which the way the market goes near-term, the long-term weekly chart shows a failure at gap resistance in addition to the June 8th price support level:

I remain quite bullish, so I won't rule anything out. But it would show tremendous resiliency for the S&P 500 to rally again next week and clear this overhead gap resistance.

Model Portfolio:

The Model portfolio fell 2.36%, losing relative ground to the S&P 500 for a second straight week. Here's the updated inception-to-date chart of the portfolio:

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

One week after health care (XLV, -0.75%) looked so strong, it finished near the bottom of the weekly sector leaderboard, along with technology (XLK, -1.53%) and communication services (XLC, -0.98%). 8 of our 10 Model Portfolio component stocks reside in those three sectors, so staying even moderately close to the overall S&P 500 was a clear positive.

Aggressive Portfolio:

The Aggressive portfolio dropped 1.81%, better than the Model Portfolio, but it too lagged the benchmark S&P 500. Here's the Aggressive portfolio chart since its inception on May 19, 2019:

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

This portfolio boasted 5 winners last week, including 3 that gained greater than 3%. Unfortunately, EVER's weak performance more than offset those gains and led to the portfolio's underperformance. EVER, despite losing its 50 day SMA, has quickly reached a key area of price and gap support:

Internet stocks have been weak vs. the S&P 500 (bottom panel) for over two weaks now, contributing to the weakness in EVER shares. I did like to see its AD line turn back up on Friday, as it's had the appearance of strong accumulation throughout the year. I'd like to see EVER rebound this week.

Income Portfolio:

The Income portfolio moved lower by 2.31% last week, which was probably the most disappointing performance by any of our portfolios. Here's a look at the inception-to-date chart:

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

It was a combination of weak health care stocks and Intel's INTC poor quarterly results on Thursday after the bell that slammed our Income Portfolio. KLAC fell in sympathy with INTC (fell 16.24% on Friday) on Friday, losing 7.70% that day alone.

Strong AD Portfolio:

The Strong AD Portfolio slid just 1.01%, underperforming the S&P 500 by less than 1 percentage point. Here's a look at the inception-to-date chart:

Here are how the Strong AD portfolio component stocks performed last week:

PTON held up this portfolio, while VRTX and WORK's weakness weighed on the group as a whole. VRTX reports this week, while WORK has tested key price support again. It bounced strongly last time and the bulls will be looking for more of the same this week. There's definitely one positive on WORK - its AD line remains quite strong despite the price weakness:

Summary

The week ahead could be a volatile one for our portfolios as 14 of our 39 component stocks (AAPL is in both our Model and Income Portfolios) will be reporting their latest quarterly results this week. We've already seen that while strong relative strength has mostly led to strong results, it does not always result in positive price reactions. Many of our stocks have been bid significantly higher over the past couple months in anticipation of strong results. Disappointment and "sell on the news" has already hurt Netflix (NFLX), Tesla (TSLA), Chipotle Mexican Grill (CMG), and Microsoft (MSFT). Should this trend continue, it will no doubt impact our portfolios in negative fashion. The long-term picture remains bright, but short-term results can be impacted by this market attitude.

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."