EB Daily Market Report - Sunday, January 24, 2021
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, January 25: None
Tuesday, January 26: SBUX, AMD
Wednesday, January 27: AAPL, TSLA
Thursday, January 28: EMN, DLB
Friday, January 29: DSKE
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 our portfolios:
- 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 were all entered into as of the close on Thursday, November 19th; members may choose to try to time better entries, but EB.com "purchased" as of November 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 is the 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 1.0%
- 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 at the beginning of the pandemic was an anomaly, occurring 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:
It was an excellent week for our portfolios. The Model and Income portfolios just went along for the ride, but the Aggressive and Strong AD portfolios absolutely soared. And don't believe for a second that those Pandemic Index areas (10 of the worst performing industries back in March/April are equal-weighted in this index) are leading this market strength, because numbers don't lie. The Pandemic Index barely budged during another S&P 500 breakout week. It's earnings season and the money is flowing to those areas that will report excellent growth and likely raise forecasts.
Weekly Summary
Benchmark S&P 500:
Last week, I discussed how falling back to test the rising 20 day EMA was not a bearish thing. Well, the holiday-shortened week provided an exclamation point to what I was saying. It was truly double the good news! Not only did we see the S&P 500 rebound nearly 2%, but take a look at the sector breakdown on the advance:
Check out that leaderboard! When the S&P 500 breaks to yet another all-time record high and Wall Street is bidding up shares in communication services, technology, and consumer discretionary during the process, well, let me just say that it's very difficult for me to be bearish. Energy (XLE) and financials (XLF) took a well-deserved breather and passed the torch to what I believe are the three most aggressive sectors.
This is a bullish development.
Model Portfolio:
The Model Portfolio finished 1.02% higher, trailing the S&P 500 last week. Here's the updated inception-to-date chart of the portfolio:
Here are how the Model portfolio component stocks performed last week:
YETI and ALGN both seem poised for 50 day SMA tests after falling below their 20 day EMAs with negative divergences in play. CROX, however, already had its 50 day SMA test and PPO centerline reset, so I'm expecting it to bounce back to new highs. Its footwear ($DJUSFT) peer group has seen some profit taking, but I'd certainly look for a recovery in the space, setting up another advance for CROX:
Aggressive Portfolio:
The Aggressive Portfolio surged a record-setting 9.65%, leaving the S&P 500 in its dust. Here's the updated inception-to-date chart of the portfolio:
Here are how the Aggressive portfolio component stocks performed last week:
SPWR and BBBY had spectacular weeks as relative strength and short squeezes highlighted their bullish action. It was easily the strongest week of the quarter for the Aggressive Portfolio and it's now more than doubled in approximately 1 year and 8 months. While that's a stunning performance, it actually took the Aggressive Portfolio longer to reach 100% than the Model Portfolio, which did it in just over 1 year and 7 months. The Strong AD Portfolio, which benefited from having an inception date AFTER the pandemic low, is on the verge of this 100% achievement in just over 8 months, which is remarkable. Needless to say, we're proud of these portfolios and our strategy.
SPWR and BBBY have short % of float of 50.84% and 61.21%, respectively. That latter number, along with a breakout on Friday on extremely heavy volume, could lead to another surge in the week ahead. We'll see.
Income Portfolio:
The Income Portfolio tacked on another 1.86%, keeping pace with the benchmark S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Income portfolio component stocks performed last week:
I wrote a Don't Ignore This Chart blog article on AAPL nearly two weeks ago, indicating that its handle in its cup with handle bullish continuation pattern looked complete. So I'm not at all surprised with AAPL's surge last week. I owned AAPL, though I did sell on Friday as it hit the September and December price resistance near 138. The breakout, however, was very bullish. AAPL reports earnings on Wednesday after the bell. Here's the chart:
I would have liked to have seen more volume accompanying the breakout. Still, AAPL is uptrending and remains quite bullish. After consolidating for 4+ months, a better-than-expected earnings report, coupled with strong guidance, could send AAPL running higher again.
Strong AD Portfolio:
The Strong AD Portfolio popped another 5.42% higher, nearly hitting a 100% gain. It's more than tripled the S&P 500 performance since its inception. Here's the updated inception-to-date chart of the portfolio:
Here are how the Strong AD portfolio component stocks performed last week:
ENPH and NIO, two stocks that were no doubt heavily impacted by last Friday's options expiry, came roaring back (coincidence right?) this week to lead a solid week for our Strong AD Portfolio. They weren't the only strong stocks, however, as 9 of 10 component stocks gained at least 1%. 8 of 10 beat the S&P 500's return and 6 out of 10 more than doubled it.
I believe the best technical signal may have been provided by NVDA, however. NVDA was a top performing semiconductor stock ($DJUSSC) until it set its price high in September. Since then, NVDA has consolidated sideways and been a relative laggard among its peers. NVDA managed to close above 2-month resistance (550) on Thursday, though, on a slight uptick in volume. I'd like to see the 20 day EMA, currently at 532.75 hold on any selling, while another break above Thursday's close at 554.70 would very likely lead to a major test at that September 2nd opening price of 587.98:
Summary
Well, I discussed last week that there was at least the possibility of "buy on rumor, sell on news". A strategy that focuses on timing moves into and out of the stock market is dangerous in a secular bull market, because sometimes the market doesn't listen to you when you think it should (or could) sell off. If you're not skilled at timing these ins and outs, and don't have the ability to deal with the emotions that accompany such attempts, then it's best to remain fully invested and simply deal with the inevitable bouts of profit taking that we'll surely experience from time to time. The rotation that I pointed out earlier is extremely bullish and favors further upside.
Model ETF Portfolio
We held our latest Model ETF Portfolio "draft" on Tuesday and we moved from 8 ETFs to 7. The only returning selection was IBUY, which represents online retail. We definitely got off to a nice start last week with our new groups of ETFs. Let's hope that continues throughout the next quarter.
Here's the updated inception-to-date chart of the Model ETF Portfolio:
Here are how the Model ETF Portfolio component ETFs performed last week:
These week-to-date results include Tuesday's action. Remember, the above ETFs were "drafted" on Tuesday, after the close. Still, it's a good representation of how our Model ETF Portfolio performed to begin the new quarter.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."