EB Weekly Portfolio Report - Monday, June 20, 2022

Tom Bowley - June 20, 2022

Special Note - Re-Draft

When our Model ETF Portfolio was announced in April 2022 and our various stock portfolios were announced in May 2022, I indicated that IF I believed a potential bottom was in place, I would consider "re-drafting" the stocks to include in each portfolio. Well, I boldly predicted a market bottom last week, so I'm changing up some of the stocks in our portfolios. Those portfolio stocks that have lost relative strength (my judgment) are being replaced by stocks that are showing more bullish characteristics. I will provide everyone a list of the 10 stocks in each stock portfolio (and 10 ETFs in the Model ETF Portfolio) on Tuesday. They will be much more growth-oriented and, as such, will carry significant risk - especially if I'm wrong about being at a market bottom. EB.com will sell all portfolio stocks and portfolio ETFs as of Tuesday's closing price. We will then buy the new portfolio stocks and portfolio ETFs (equal-weighted) as of Tuesday's closing price as well.

Ultimately, the decision to buy some or all of our portfolio stocks is completely up to each EB.com member. We are not registered investment advisors (RIAs) and cannot provide financial advice to members. Our portfolios are part of our educational process, as we use technical indicators that we believe in to attempt to beat the benchmark S&P 500. These stocks, and their inherent risks, may not be appropriate for everyone.

One thing that ALL MEMBERS need to know is that I do not personally own the portfolios. These are stocks that I like and trade often, but I don't have a "buy and hold" mentality nor such strategy. These portfolios were originally designed for our members who did not want to trade frequently. They liked our relative strength approach and wanted to incorporate it into their longer-term strategies. These portfolios are a blend of trading and buy-and-hold strategies. They are trading in the sense that the portfolios are reviewed every 90 days (quarterly), with many, if not all, stocks replaced by new emerging leaders. They are buy-and-hold in the sense that we do not use stops. We hold them until the date of our next "draft".

Members are encouraged to trade, buy, ignore these stocks - whatever feels appropriate in your own personal financial situation.

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, June 20: None - Market Closed

Tuesday, June 21: None

Wednesday, June 22: None

Thursday, June 23: None

Friday, June 24: 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 Thursday, May 19th; members may choose to try to time better entries, but EB.com "purchased" as of May 19th'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:

The Income Portfolio should have the least amount of volatility as it will typically be comprised of quality large cap stocks with solid dividends
The Model, Aggressive, Strong AD, and Earnings Reactions Portfolios should be viewed similar to aggressive growth funds; they will typically have a lot of volatility
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
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:

Take another look at last week's performance above. Our portfolios were designed to outperform the S&P 500 this quarter when the market is weak. We are very defensively-oriented. When we underperform like we did last week ON A DOWN WEEK, it's telling us one of two things. Either (1) that market rotation is back towards growth stocks and it's time to switch our portfolios to more growth-oriented stocks, or (2) that growth stocks saw relief last week, because there were so many net in-the-money puts on the beaten-down growth area. I actually think both are correct.

Here's last week's sector performance:

It was "Opposite George" week as June monthly options expired on Friday. Many times, the best sectors struggle during options expiration week, while the weak sectors suddenly lead. We saw a bit of that last week - especially with energy stocks (XLE), which were crushed.

Model Portfolio:

The Model Portfolio lost 10.61% last week, badly underperforming 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:

Aggressive Portfolio:

The Aggressive Portfolio fell 9.47% last week, 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:

Income Portfolio:

The Income Portfolio lost 5.57% last week, but slightly 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:

Strong AD Portfolio:

The Strong AD Portfolio tumbled 9.26% last week, underperforming 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 fell 8.29% last week, underperforming 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:

The Week Ahead

Your guess is as good as mine. I have definitely seen bottoming signals and I've made my bold bottoming call, but there are never any guarantees as to future market behavior. The key sustainability ratios that I follow all turned higher, while the S&P 500 turned lower. That is a very good signal, but one that we'd like to see remain intact. We need to see those previous relative lows from April and May hold:

I've drawn a reverse (bottoming) head & shoulder as a possible pattern that could emerge. Normally, I'd put little faith in a reversing pattern, because the trend is clearly bearish and the trend is your friend. However, we've seen sentiment "reset" and finally hit key levels that can drive market bottoms. Also, rotation is becoming more bullish - at least based on the evidence right now. That would make bullish patterns much more significant, in my view.

Historically, the stock market LOVES the month leading up to earnings season. I've provided information on those historical studies in the past. July is no different. All EB.com members should know that the 19th-25th of ALL calendar months tends to be the most bearish part of the month, with December being the primary exception to that rule. That's because the stock market historically does very well from the 11th through the 18th....and then options expire, dragging prices lower due to all the net in-the-money call premium. Remember, though, that last week was AWFUL, with the S&P 500 falling 5.79%. I wouldn't expect the week after to naturally decline since a significant decline has already taken place. If anything, I'd expect a bounce. Then, from the June 27th close through the July 16th close, the S&P 500 has produced annualized returns of +26.55% since 1950. As I said, the S&P 500 has a strong tendency to rise into the start of earnings season.

Finally, the cyclical bear market that I discussed waaaaay back in early January has played out. I provided a worst-case forecast of 3500, looking for the S&P 500 to potentially test its mid line in the channel established back at the 2009 bottom:

This just seems like the obvious point for a reversal. Again, there are never any guarantees. However, I believe the major risk has shifted from being long back at the start of 2022 to being short or in cash now that we've made through nearly the first half of the year.

Model ETF Portfolio

Our Model ETF Portfolio tumbled 6.72% last week, underperforming 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."