EB Weekly Portfolio Report - Sunday, March 13, 2022
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, March 14: None
Tuesday, March 15: None
Wednesday, March 16: None
Thursday, March 17: None
Friday, March 18: None
PLEASE NOTE: 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, February 18th; members may choose to try to time better entries, but EB.com "purchased" as of February 18th's closing prices
- Primary objective is to outperform the benchmark S&P 500 over time; quarter-to-quarter performance can be extremely volatile, especially if significant rotation takes place intra-quarter
Here are several considerations for EB members:
- I would expect the Aggressive, Strong AD, and Earnings Reactions 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. The Earnings Reactions portfolio is based on strong accumulation the day after its quarterly earnings are released and solid relative strength (vs. its peers). These are the only two portfolios that do NOT require revenue and EPS beats in their most recent quarterly earnings reports
- 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 four; 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 and the November 2021 to February 2022 periods 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:
The 4400 level is now likely to rebuff the bulls if the S&P 500 can even make it back to that level. I doubt it will in the near-term as our next major leg lower might very well be underway. Still, with the Volatility Index ($VIX) above 30, quite literally anything is possible short-term. Last week saw the S&P 500 drop 2.88%, but again it was "out done" by the more growth-oriented NASDAQ 100 ($NDX), which dropped 3.87%. There are still no signs that Wall Street is using this weakness to accumulate more aggressive growth stocks. Check out last week's sector summary:
In addition to the XLY, XLC, and XLK being "in the tank", the other half of consumer stocks - staples (XLP) - were horrible performers. Consumer spending represents approximately 2/3 of our GDP and even the defensive XLP has fallen below its 50-week SMA (for the first time since June 2020. The market is telling us that a recession is coming or is already here, so don't be surprised when it's later confirmed 6-9 months from now. Here's that XLP weekly chart:
If this chart is telling me a story, it's that Wall Street has finally caved in and realizes a recession is now inevitable. I'd continue to look for relative strength in the XLP vs. the S&P 500 (bottom panel), but the absolute breakdowns in many key staples stocks triggered the impulsive selling in the group. Expect further absolute deterioration, but relative stabilization.
Model Portfolio:
The Model Portfolio fell 2.50%, slightly outperforming the benchmark 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:
DDOG remains under intense selling pressure, but I'm expecting it to hold key gap support:
Panic can trigger selling like we could never imagine, so I wouldn't look at this chart, or any other for that matter, as a guarantee in terms of support. You must keep stops in play. What if I'm wrong and this turns into a secular bear market? I don't believe that's the case, but we still must remember that ANYTHING is possible with the stock market. Live to trade another day if support levels fail. If holding portfolio stocks for the full 90 days, then just remember that there'll be bad times just like there were good times. Those are the ups and downs that long-term investors must always be prepared to handle.
Aggressive Portfolio:
The Aggressive Portfolio descended 2.71% last week, barely 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:
AA is actually a very healthy stock, as are many energy and materials stocks. But it's pulled back more than 10% and is now testing key 20-day EMA support. I expect a bounce next week:
The last price high was accompanied by a higher PPO reading, so momentum here remains positive. I see one more high coming, but that high will likely see a negative divergence. Therefore, if I was trading AA (which I'm not currently), I would gladly take profits on any move back up above 90.
Income Portfolio:
The Income Portfolio declined 3.21%, falling 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:
UNP bounced off a very solid 20-day EMA test last week. Note the rising PPO from its centerline. This suggests that bullish momentum is building:
I see one problem on this chart that I'd like to see resolved. Railroads ($DJUSRR) have been exceptionally strong, taking UNP higher with it. UNP, unfortunately, is not showing relative leadership among its peers. So there could be better railroad stock alternatives right now. A break in the UNP:$DJUSRR ratio above the November high would be extremely bullish, but UNP still has some work to do to get there.
Strong AD Portfolio:
The Strong AD Portfolio dropped 2.34% last week, but did manage to slightly outpace 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:
LYV bounced beautifully off 100 price support, but then failed at its key moving averages. Right now, it's trapped there. Let's see which level gives way first:
Earnings Reaction Portfolio:
The Earnings Reaction Portfolio fell 3.72% last week, failing to keep pace with 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
What else is left to be said? We've been discussing for nearly 3 months the warning signs that were pointing to EXACTLY what we're seeing. The good news is that every 1%, 2%, or 3% drop is moving us closer to an excellent entry point into the stock market. One strategy that I'll likely employ is to buy the QQQ vs. individual stocks. I believe we're going to see inflation peak. When that happens, look to growth stocks to lead back to the upside. The following chart shows the QQQ vs. SPY over the past 5 years. Note, in particular, the 13-week ROC of the QQQ:SPY ratio. Jumping into the QQQ when this ROC reaches an extreme level typically pays off big time during a market recovery:
We might see a test of the 15-year relative uptrend line, but that 13-week ROC is nearing a critical level of relative support where we normally see the QQQ begin to outperform the SPY again. I've broken the relative support levels into 1, 2, and 3. Level 1 relative support is seen quite often, perhaps once a year. Level 2 relative support is tested much less frequently and typically accompanies major events - aftermath of 2020 pandemic and the financial crisis of 2009. Then there's Level 3, which I doubt we'll ever see again. Technology and growth stocks were CRUSHED during the dot com bubble. It was the insane ending to the last secular bull market from 1981 through 2000. If we ever see another reading like that on the 13-week ROC, run for the hills as it likely won't end well - just like 1999-2000 didn't end very well for those growth stocks.
Model ETF Portfolio
Our Model ETF Portfolio lost 2.62% last week, but still outperformed 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."