EB Weekly Portfolio Report - Sunday, April 17, 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, April 18: None
Tuesday, April 19: LMT, OMC
Wednesday, April 20: TSLA, AA, PG, THC
Thursday, April 21: UNP
Friday, April 22: AXP
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 S&P 500 lost 2.13% last week as money continued its massive shift towards defensive areas and also to energy (XLE) and materials (XLB). Here was last week's rotation:
Technology was hit very hard last week, with semiconductors ($DJUSSC, -6.86%) and software ($DJUSSW, -5.72%) taking the brunt of the selling:
I want you to look at the long-term relative strength of these two key industry groups:
When the 10-year treasury yield ($TNX) first bottomed in July 2020 and rose back to its pre-pandemic level, the DJUSSC and DJUSSW barely blinked. We saw some volatility, but both moved to new all-time relative highs, despite the rising rate environment. However, once we pierced those pre-pandemic TNX levels, both of these groups faltered badly and you can see the impact it's had on the S&P 500. These are two critical industry groups to watch, because it's very, very unlikely that the S&P 500 will just snap back without relative strength from both of these groups. They are leaders in secular bull markets.
Model Portfolio:
The Model Portfolio gained 0.37%, outperforming the benchmark S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Model portfolio component stocks performed last week:
MAR had a huge week and is now approaching a key level of price resistance, established in mid-February:
Its relative strength vs. hotels peers ($DJUSLG) is excellent, so a potential breakout is likely dependent upon whether the DJUSLG can break above its mid-February high.
Aggressive Portfolio:
The Aggressive Portfolio rose 0.57% last week, 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:
JNPR lost a little ground last week, but did manage to bounce off of trendline support:
A break beneath trendline support could lead to a price support test in the 31-32 area. Obviously, holding this trendline support is the more bullish alternative.
Income Portfolio:
The Income Portfolio fell 0.21% last week, but still outperformed 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:
MET was up slightly last week, but I see a very symmetrical cup in place and current consolidation forming the handle:
A definitive closing breakout above 72.05 would potentially measure higher by another 10 bucks.
Strong AD Portfolio:
The Strong AD Portfolio jumped 1.59% last week, easily outgaining 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:
Banks ($DJUSBK) have been extremely bearish over the past 2-3 weeks and closed on Thursday at their 52-week low. TD has been an exceptional relative performer, but the overall bearishness of the group has taken it lower as well. 74 would appear to be a very strong and important price support level:
Earnings Reaction Portfolio:
The Earnings Reaction Portfolio gained 0.51% last week, outperforming the S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Earnings Reaction portfolio component stocks performed last week:
CHD is another stock that appears to be trading sideways in a handle after a bullish cup formed:
It's trading quite strong relative to its nondurable household goods peers ($DJUSHN) and it's a defensive stock, which Wall Street continues to rotate towards. I marked a green arrow at the 20-day EMA as this level many times holds as the bottom in a handle. We'll see if that's the case here.
Summary
About four weeks ago, I published a weekly S&P 500 chart right here in the EB Weekly Portfolio Report that suggested we watch the declining 20-day EMA. We ultimately broke above that key moving average, but last week's selling carried us right back beneath it. This is not a good look at all:
Note that the weekly PPO never crossed the centerline, suggesting that intermediate-term momentum never moved from bearish to bullish. This really puts U.S. equities in a negative light as we move deeper into earnings season. While current quarterly results may give boosts here and there to individual stocks, I believe it's the outlook of higher interest rates and a possible recession that will keep a lid on equity prices overall. That will change in time, but we'll need to have patience. If you want to take the bullish stance on U.S. equities, there's still a potential inverse head & shoulders continuation pattern in play - one that I also pointed out recently. Check out the current look:
I've always stressed that patterns must be confirmed. During uptrends, topping head & shoulders patterns emerge quite often, but rarely confirm with neckline breakdowns. I believe that's the problem with this pattern. It needs to be confirmed, but the stock market is showing bearish signals that make me doubt the validity of this bullish pattern. It's very unlikely that we'll see a breakout with defensive sectors leading. Therefore, we're going to need to see plenty of rotation back towards aggressive sectors and, right now, there are no signs of that.
Approach the market right now with an abundance of caution.
Model ETF Portfolio
Our Model ETF Portfolio rose 0.02% last week, easily beating 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."