EB Weekly Portfolio Report - Sunday, August 9, 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, August 10: None

Tuesday, August 11: None

Wednesday, August 12: None

Thursday, August 13: NVDA

Friday, August 14: 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:

In the Weekly Summary below, you'll see there was significant rotation last week, which really didn't favor our portfolios last week.

Weekly Summary

Benchmark S&P 500:

The S&P 500 gained 2.45% last week and closed at 3351.28, approaching its all-time of 3393.52. I firmly believe the S&P 500 is heading to all-time highs and it could happen as soon as this week. Despite all the political bickering and the pandemic issues, we've seen encouraging economic signs. Manufacturing reports have moved solidly back above 50, which indicates economic expansion, initial jobless claims continue to drop, and Friday's nonfarm payrolls came in well above estimates as unemployment came close to moving back to single digits. As economic conditions show improvement, money is rotating back to areas of the market that have lagged for several months, namely the Dow Jones, mid caps, and small caps. These 3 indices gained 3.80%, 4.00%, and 5.35%, respectively, well above the S&P 500 and the NASDAQ 100 ($NDX, +2.14%).

Model Portfolio:

The Model portfolio took a breather last week, falling 0.25% . Here's the updated inception-to-date chart of the portfolio:

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

ZYXI has definitely been a problem for the past month, after nearly reaching 30 on July 10th. Its daily chart is very weak, but it's rapidly approaching an important price support level on its weekly chart:

I don't know if ZYXI makes it down to 14, but if it does, the long-term weekly chart would be screaming buy.

Aggressive Portfolio:

The Aggressive portfolio eked out an anemic gain of 0.05%. Here's the Aggressive portfolio chart since its inception on May 19, 2019:

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

We saw CRAZY volatility among individual stocks in our Aggressive Portfolio. I guess that's why it's the "aggressive" portfolio. ENPH was a big winner as renewable energy stocks ($DWCREE) soared last week. W posted incredible growth and Wall Street reacted very positively. But on the flip side, investors were not impressed with EVER's quarterly revenue and EPS misses.

Income Portfolio:

The Income portfolio rose by 2.04% last week, also outdistancing the S&P 500. Here's a look at the inception-to-date chart:

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

It was a solid week for our Income Portfolio as Humana (HUM) led the way with a breakout after a few months of consolidation:

If health care providers ($DJUSHP) can break above 2300 and clear the June 8th close, I'd expect to see HUM be among its leaders.

Strong AD Portfolio:

The Strong AD Portfolio advanced 1.44%, trailing the benchmark by 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:

WING and NVDA no doubt helped the Strong AD Portfolio stay fairly close to the S&P 500 last week. NVDA reports its quarterly results on Thursday, August 13th, however, and we know, even if results are better-than-expected, we could see selling and increased volatility. I believe NVDA will report solid numbers and I'd expect to see price and 20 day EMA support in the 423-424 area hold on any short-term profit taking.

Summary

One of the hallmarks of a true bull market advance is wide participation. The same stocks and industry groups do not carry the load indefinitely, nor do they need to. We see rotation and breakouts in underperforming areas. Last week, the Dow Jones outperformed the S&P 500 and NASDAQ 100, which we really haven't seen much of in 2020, especially since the pandemic-induced selloff began in February. It's on the verge of breaking above the June high, which I believe it will do sooner rather than later. After that, it's just a matter of time before we see the February all-time high of 29568.57.

As we look ahead to the balance of 2020 and into 2021, I firmly believe that the environment will remain strong for growth stocks. But the question that will make things tricky is, "how much of that expected growth is already built into prices"? I do expect to see lagging areas of our economy and stock market begin to accelerate their recovery. Watching the bond market will be important for clues in this regard. Also, it'll be very important to watch the transports ($TRAN), which accelerated through resistance last week, also breaking out relative to the S&P 500:

This sudden surge in transports might be the best news of all for us bulls. If you look at history, we almost never see the stock market struggle when transports are leading.

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."