EB Weekly Portfolio Report - Saturday, January 1, 2022
Happy New Year!
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 3: None
Tuesday, January 4: None
Wednesday, January 5: None
Thursday, January 6: None
Friday, January 7: 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, 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 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 2021 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:
Weekly Summary
Benchmark S&P 500:
It was a fairly quiet week as our key indices were anywhere from flat to up 1% or so. For the week, volume was its lightest of the year, which is normal. As we begin 2022, another problem that we face is the continuing rise in weekly prices as the weekly PPO falls - a significant negative divergence:
I believe we've simply run too far. The thick blue line marks "generational-type" support. I don't see us testing that in 2022. However, the blue-dotted trend line connects many intermediate-term lows throughout the advance from 2009. It's quite possible we reach or approach that support line in the first 3-6 months of 2022. I would not rule out 4000 as a possible test. Should we get that far, I'd expect to see a massive rally later this year.
Model Portfolio:
The Model Portfolio dropped 0.38%, 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:
Aggressive Portfolio:
The Aggressive Portfolio climbed 0.23% last week, trailing the 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:
Income Portfolio:
The Income Portfolio jumped 1.93% last week, easily beating 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:
Strong AD Portfolio:
The Strong AD Portfolio lost 0.63% last week, falling further behind 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:
Earnings Reaction Portfolio:
The Earnings Reaction Portfolio rose 0.47% last week, but still trailed the S&P 500 fractionally. Here's the updated inception-to-date chart of the portfolio:
Here are how the Earnings Reaction portfolio component stocks performed last week:
Summary
We don't see defensive groups leading a market rally to new all-time highs very often, but I've been commenting on that lately and it's not going away. Last week, we saw the S&P 500 close at another all-time high on Monday, December 27th and print intraday all-time highs on both Tuesday and Thursday. Yet when we look at sector leadership last week, this is what we get:
Real estate. Utilities. Materials. Consumer staples. That is a BIG red flag. The weekly negative divergence that I highlighted earlier also suggests we need some selling. I'd be extremely careful as bring in the new year. I could see anywhere from a 10% to a 20% drop ahead. In my opinion, if this occurs, it will all be part of a much bigger secular bull market. I'm just passing along short-term warning signs that I'll be discussing in much more detail at next Saturday's Market Vision 2022 event.
Model ETF Portfolio
Our Model ETF Portfolio gained 0.73%, slightly underperforming the benchmark 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."