EB Weekly Portfolio Report - Sunday, February 6, 2022

Tom Bowley - February 06, 2022

Portfolio ChartLists Update

Earnings dates have changed on a number of our portfolio stocks. They've been corrected on all of our portfolios based on the earnings dates reflected on StockCharts.com. Just beware that if you're relying on the earnings dates reflected next to the ticker symbol in our ChartLists, you will need to re-download our portfolio ChartLists to ensure you have the latest dates provided by StockCharts.com. If the earnings dates are critical to your trading strategies, I would confirm all earnings dates with other sources like Zacks.com.

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, February 7: ON

Tuesday, February 8: ENPH, KKR, TRI, PFE

Wednesday, February 9: EFX

Thursday, February 10: DDOG, CFLT (e)

Friday, February 11: None

PLEASE NOTE: Any company above designated with "(e)" means that it's included in our Earnings Reaction Portfolio, which is a portfolio that we do not officially track at EarningsBeats.com. Still, we wanted to make sure you were aware of the upcoming earnings dates for those stocks as well. The above companies were provided using earnings dates provided by StockCharts.com. My research is limited to what StockCharts.com provides and I also can make a mistake from time to time, so please double check for earnings dates for all companies that you own from a reputable source like Zacks.com. 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:

Overall, I'd call it a pretty good week for U.S. equities. After previously holding onto key price support at 4300, the S&P 500 bounced right on cue and that helped to provide the entire market a lift. It had been awhile, but growth stocks performed better on a relative basis, especially among small cap ($DJUSGS, +3.11%) and mid cap ($DJUSGM, +2.92%) growth stocks. They both outperformed large cap growth ($DJUSGL, +1.79%). All of this helped contribute to rare outperformance by our growth-oriented portfolios last week. It's been a very rough period for nearly all growth stocks, so the rally in that area of the market was nice.

The strength wasn't perfect by any means, however. Here is last week's performance by sector:

The wrong groups are leading us higher. I'm not opposed to energy (XLE) and financials (XLF) performing well, but there's something wrong when they are our leaders. Technology (XLK), after being crushed, gained just 1% last week. That's not good enough. I view this rally as yet another opportunity for Wall Street to reallocate its resources away from aggressive sectors. While you might argue that consumer discretionary's (XLY) strength is good news, the fact is that the XLY has been absolutely massacred, falling nearly 20% in 24 days. It saw a bounce, but was unable, at any point, to regain its 20-day EMA. I'm not impressed.

Model Portfolio:

The Model Portfolio surged 7.37%, trouncing 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 spiked 3.36%, outperforming 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 fell 0.67%, our only portfolio to trail the S&P 500 last week. 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 climbed 4.02%, outperforming 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 jumped 3.34%, more than doubling the S&P 500's return last week. 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 believe short-term battle lines have now been drawn. If the S&P 500 is to move from its current downtrending pattern to more of a consolidation pattern, we'll need to see the 4600 level negotiated. That won't be easy given the technical damage inflicted since the beginning of the year. To the downside, neckline support at 4300 will be critical price support. I generally don't pay attention to topping patterns in a secular bull market as the technical tailwinds typically win out and prices move to new highs before confirming the bearish patterns. However, I'm much more cautious this time as Wall Street turned much more defensive to end 2021 and sentiment is truly a problem. The only way to correct the latter is to see a period of weakness to turn sentiment from very bullish to at least neutral. That will take some time.

Here's the S&P 500 chart with the new short-term trading range established:

The following 2-month hourly chart is the reason I believe we're much more likely to see another downturn and, ultimately, a break of neckline support:

This chart features 3 key ratios in the 3 bottom panels. These are what I would consider "sustainability" ratios. When the market is moving higher, I like to see these 3 ratios move higher with the market to indicate potential sustainability of the advance. Note that all 3 turned lower long before the S&P 500 topped. They were telling us that the S&P 500 advance was not sustainable - that either these 3 ratios needed to move higher, or the alternative was a market top. We now know what happened.

After moving violently lower in January, we've experienced a bit of a reprieve. So the obvious question is, "will it last?" I honestly don't believe it will. There are never any guarantees, but the signal above says this rally has no legs. All 3 ratios have barely budged off their January lows, while the S&P 500 mounts this "impressive recovery". But is it all that convincing? I don't think so.

Please be careful, especially if 4300 neckline support is lost on the S&P 500.

Model ETF Portfolio

Our Model ETF Portfolio gained 1.79%, outperforming 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."