EB Weekly Portfolio Report - Sunday, October 3, 2021

Tom Bowley - October 03, 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, October 4: None

Tuesday, October 5: None

Wednesday, October 6: None

Thursday, October 7: None

Friday, October 8: 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 Thursday, August 19th; members may choose to try to time better entries, but EB.com "purchased" as of August 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 in the February through May period 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 consider owning or trading 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 a rough week for our portfolios as higher treasury yields favored value stocks over growth stocks. Few areas escaped the selling, however.

Weekly Summary

Benchmark S&P 500:

We were prepared for selling the week before as historical headwinds suggested we might see selling. But last week certainly caught me by surprise. We are in consolidation mode, so I guess I shouldn't have been too surprised, but the relative strength of the aggressive sectors had me thinking we were ready to turn higher again. There was a mixture of selling last week, though health care and technology led the downside action:

Unfortunately, the Model, Aggressive, and Strong AD portfolios have 40% representation in those two sectors. It benefited us for several weeks, but not last week. Also, our trial portfolio - the Earnings Reaction Portfolio - had 5 component stocks in these two sectors. All of this contributed to last week's underperformance.

Model Portfolio:

The Model Portfolio declined 5.39%, weakening vs. 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:

SHOP seems destined for a test of 1300 after losing short-term support closer to 1400:

There are definitely technical positives on the chart, however, which is encouraging to me. First, volume on this recent selling has not been heavy at all, so I would not view it as distribution. Instead, the AD line has remained fairly strong, suggesting quite the opposite - accumulation on this selling. It's also important to note that software ($DJUSSW), overall, remains quite strong on both an absolute and relative basis. I wouldn't be surprised to see a big upcoming earnings report from SHOP.

Aggressive Portfolio:

The Aggressive Portfolio dropped 5.74% last week, significantly underperforming the benchmark S&P 500. Here's the updated inception-to-date chart of the portfolio:

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

MRNA lost more than 20% last week, quite a shellacking. It's extremely important to keep stock performance in perspective. When a stock triples in value in just 3 months, it's going to be subject to much more volatility and periods of big selloffs like the one we saw last week on MRNA. The selling may not be over. I've annotated a couple key areas of major support if MRNA continues its selloff in October:

Like SHOP, MRNA's AD line has remained pretty solid. Even Friday's huge selling resulted in plenty of buyers coming in after the first 45 minutes, which is when the lion's share of the selling took place. I wouldn't rule out further selling, but the bigger the drop, the better reward to risk entry if you're a trader of our portfolio stocks.

Income Portfolio:

The Income Portfolio dropped 2.76%, falling just slightly more than the 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:

AWK was the biggest loser in our Income Portfolio last week, but I believe it's reached an area where buyers will emerge:

The AD line here is not nearly as strong as the previous two, but utilities tend to perform very well in September and October. September 2021 was not kind to the sector, so I believe an October rebound is likely in order. A potential reversal in the 164-170 support area will be worth watching for.

Strong AD Portfolio:

The Strong AD Portfolio tumbled 6.23% last week, and now trails the S&P 500 by a couple percentage points. Here's the updated inception-to-date chart of the portfolio:

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

MELI was hit hard last week, but it too shows a solid AD line and it's entered a gap/price support level where buying should be expected:

MELI's industry group - specialized consumer services ($DJUSCS) - is a part of the problem here, but MELI has been outperforming its peers for the past 3-4 months. But will it hold the support area?

Earnings Reaction Portfolio:

The Earnings Reaction Portfolio fell 5.28% last week, but still holds a slight lead over the S&P 500. Here's the updated inception-to-date chart of the portfolio:

Here are how the Earnings Reaction portfolio component stocks performed last week:

Summary

I have the breakdown of S&P 500 performance during each of the calendar quarters, but I've further broken them down by average first half quarter performance vs. average 2nd half quarter performance. Here are the numbers:

January 1 - February 15: +2.69%
February 16 - March 31: -1.25%
April 1 - May 15: +2.92%
May 16 - June 30: +1.74%
July 1 - August 15: +2.48%
August 16 - September 30: +0.34%
October 1 - November 15: +2.90%
November 16 - December 31: +1.48%

A couple things stand out to me. Check out the average first half of quarters. All four have been extremely strong. As I've discussed many times, pre-earnings advances result in strong S&P 500 performance. Once we move into the second half of quarters, especially the 3rd calendar month of each quarter, we tend to see underperformance.

Check out this seasonality chart for the S&P 500 since 2013 and pay particular attention to the four months that wrap up calendar quarters - March, June, September, and December:

June is the only month of the four that shows a positive average return.

None of this guarantees us anything, but history points to the likelihood that we'll see higher prices ahead in Q4.

Model ETF Portfolio

Our Model ETF Portfolio dropped 3.19% last week, losing a full percentage point to the S&P 500.

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."