EB Weekly Portfolio Report - Sunday, August 15, 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, August 16: None
Tuesday, August 17: None
Wednesday, August 18: None
Thursday, August 19: AMAT
Friday, August 20: 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 his/her 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 Friday, May 19th; members may choose to try to time better entries, but EB.com "purchased" 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 70 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.
- Large drawdowns last quarter were due to the rapid rotation from growth stocks to value stocks; each quarter, our portfolios are based on themes and there is never a guarantee that our analysis and beliefs will be proven correct
- 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:
I added an "Earnings Reaction" portfolio, which has 10 equal-weighted stocks like the other portfolios. These 10 stocks were selected on Tuesday, August 10th, so their performance began using the Tuesday closing prices. The selection process was heavily influenced by the "day after earnings" accumulation, tracking hundreds of companies throughout earnings season to find those that made the most significant advances from the opening bell to the closing bell. I also reviewed charts and ensured adequate liquidity before selecting the 10 stocks. Relative strength was not necessarily a prerequisite for selection, so that is one trait is missing from this portfolio, but heavily influenced our other portfolio selections.
I plan to track this Earnings Reaction Portfolio for at least one quarter, possibly two, to test the predictive value of this accumulation signal. I'll continue to report results here.
Weekly Summary
Benchmark S&P 500:
Last week was a mixed one. The S&P 500 kept its winning streak alive, closing at yet another all-time high on Friday. The Dow Jones followed suit. However, the attempted move higher on the NASDAQ was much more labored as it closed down slightly from the prior week. Small caps ($SML) also lost ground.
It's so difficult to try to predict short-term tops in a secular bull market, unless sentiment indicators and divergences work together to provide us clues. While that's not really happening, it's still a bit concerning that 3 of last week's 4 sector winners were outside the aggressive group that we like to see lead:
The inability of technology (XLK) and consumer discretionary (XLY) to gain much ground weighed on the benchmark's overall performance, though still higher. As we move toward the latter part of this week, we'll need to remember monthly options expire on Friday, potentially providing the market with headwinds.
Model Portfolio:
The Model Portfolio jumped 0.39%, but slightly underperformed the S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Model portfolio component stocks performed last week:
AMAT had a rough week, but it has earnings up this Thursday and it's bullish ascending triangle pattern remains intact:
Aggressive Portfolio:
The Aggressive Portfolio rose 0.24%, falling just shy of the S&P 500's gain. Here's the updated inception-to-date chart of the portfolio:
Here are how the Aggressive portfolio component stocks performed last week:
ARNC didn't look very bullish just a week or two ago, but periods of consolidation can send your emotions all over the place. While last week was a very solid week, the consolidation continues:
Income Portfolio:
The Income Portfolio climbed higher by 0.96% as last week's sole outperforming portfolio. Here's the updated inception-to-date chart of the portfolio:
Here are how the Income portfolio component stocks performed last week:
K's chart has improved significantly as its recent down channel was snapped by last week's strength. K is part of a very weak food products group, though it's held up well vs. its peers:
Strong AD Portfolio:
The Strong AD Portfolio declined 1.28%, trailing the S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Strong AD portfolio component stocks performed last week:
ATRC was hit very hard last week, despite beating estimates and raising guidance when it reported quarterly earnings results the prior week. I don't believe its uptrend has ended, but I do believe its trajectory, or slope, is being adjusted downward. ATRC had risen 60% over a 6-month period, which is unsustainable over the long-term:
Watch the 70 price support level. That could also be a key channel support based on a more modest slope moving forward.
Earnings Reaction Portfolio:
The Earnings Reaction Portfolio declined 0.25%, underperforming the S&P 500 in its initial abbreviated week. Here are how the Earnings Reaction portfolio component stocks performed last week:
The portfolio began after Tuesday's close. Keep in mind that the above summary includes results of all 10 stocks for the entire week.
Summary
Earnings season is rapidly coming to an end. The numbers speak for themselves. Those expecting high PE ratios to result in collapsing equity prices are seeing quite the opposite market. Instead, explosive earnings are resetting the "E" in PE. Until the stock market begins to anticipate slowing earnings growth, it's going higher. Outside of normal corrective behavior from time to time, I don't expect any meaningful selloffs until after earnings season starts in January. Of course, I'll be evaluating and re-evaluating constantly between now and then. But I expect that the huge growth being reported in 2021 will be difficult to duplicate in 2022. I don't expect bad earnings next year, but the more the stock market goes up from now to year end, the riskier 2022 becomes as comps could provide headwinds. However, any weakness in 2022, if it does materialize, would all remain part of a much bigger secular bull market advance. I'm not suggesting a secular bear market, though I'm not ruling out a cyclical bear market lasting 1-3 months.
There are still key earnings reports due out this week. NVDA, CSCO, LOW, and TGT all report on Wednesday, with the latter two before the opening bell. On Thursday, there's EL and AMAT. Expect more good news in these reports as each of these 6 stocks are leaders in their respective industry groups. LOW has lost a bit of its relative luster in the home improvement area ($DJUSHI) and AMAT has been consolidating for awhile, so it too has weakened on a relative basis among its semiconductor peers ($DJUSSC). After they report, however, we'll be gearing up for another options expiration Friday.
Fasten your seat belt!
Model ETF Portfolio
Our Model ETF Portfolio gained 0.24% last week, trailing the S&P 500's 0.71% climb.
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:
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."