EB Portfolios: The Re-Draft as of Tuesday, June 21, 2022
We're seeing excellent action in U.S. equities thus far today, but it likely has much to do with the continuation of options expiration week and the fact that bearish sentiment was at an extreme level last week. The equity only put call ratio ($CPCE) saw its 5-day moving average rise to just above .82. Readings of .75 or higher have accompanied EVERY major low of this century - at least since the CBOE began providing us this information. That bearish sentiment, along with bullish sector and asset class rotation, have potentially laid the groundwork for a major market bottom. Of course, there are never any guarantees, but I use this information to make risk-based decisions.
Everyone must make his/her own decision as to the amount of risk that you're willing to take. Everyone has a different financial picture with various financial goals and objectives. I would treat our portfolios as VERY aggressive investments. The Income Portfolio is generally comprised of large cap, dividend paying stocks, which, one would think, be a bit safer. But there is significant risk of loss in any stock - especially in this volatile 2022 market environment. Still, you pay us at EarningsBeats.com to provide you our technical opinion and so I don't hesitate to do that - right or wrong.
Given the back drop of recent rotation from S&P 500 to NASDAQ, consumer staples to consumer discretionary, value to growth, etc., I believe market behavior suggests that the potential reward of more growth-oriented stocks vs. the potential risk justifies us altering the composition of our portfolios.
Disclaimer
Before I start with any presentation that involves the possibility of buying and selling stocks, I like to make everyone aware that I am not a Registered Investment Advisor (nor is EarningsBeats.com). I'm am NOT advising anyone to buy or sell any stock or ETF as I'm not licensed to do so. All such buy and sell decisions are strictly yours. Please consult your financial advisor. You have to understand that I have no knowledge of what risks are appropriate for each member. Those are decisions you have to make. The information we provide is for education purposes only, as we use many of the technical investing/trading techniques that are important to us. Our goal is to beat the benchmark S&P 500, but if our beliefs and themes are proven to be incorrect, or if we simply select the wrong stocks and/or ETFs, we will likely underperform the S&P 500, possibly by a considerable margin. Please view our portfolios as VERY AGGRESSIVE in nature as much of our focus is on more volatile growth stocks.
Model ETF Portfolio
First, let's keep in mind that we will be drafting a brand new Model ETF Portfolio as of July 19th. So we only have roughly 4 weeks until then. Accordingly, I'm planning to make the new composition of ETFs as simple as possible, featuring ONLY the major sector ETFs.
As of today's close, we will be selling all of our current Model ETF Portfolio ETFs and replacing them with sector ETFs and weighting as follows:
The S&P 500 Breakdown column shows us how the S&P 500 is currently broken down. The EB.com Allocation column is the allocation that we will use over the next 4 weeks. Entry will be as of today's closing price. We are weighting the more aggressive sectors heavier than the S&P 500, while most of the defensive sectors will carry lower weights, as will materials (XLB) and energy (XLE). Feel free to adjust your weightings as you see fit. History tells us that a rising S&P 500 typically results in outperformance by, in particular, technology (XLK), consumer discretionary (XLY), and communication services (XLC). That's why those are weighted heavier. If the S&P 500 has truly bottomed, we want to outperform the S&P 500. These allocations would help us to do that. Obviously, if I'm wrong about the stock market bottom, then the above allocation will most likely underperform the S&P 500.
Stock Portfolios
The next stock portfolio "draft" will not be held until August 19th, so any changes in the portfolios today will directly impact our performance over the next two months. After reviewing our current holdings, assessing recent performance, and then reviewing growth stocks to be included, I came up with the following stock composition for each portfolio:
A couple things here. First, we typically select ONLY companies included in our Strong Earnings ChartList (SECL) for the Model, Aggressive, and Income portfolios. There may be a few stocks that are not on the current SECL, because either (1) they reported earnings AFTER the date of our last SECL update (May 31st) or (2) when they reported strong revenues and earnings that beat Wall Street estimates earlier in the quarter, I may not have liked their charts at that time. But with the recent bullish rotation, I like the reward to risk so much better now and, thus, I've included them.
Note the percentages in the far right column. These were the yields according to Yahoo! Finance as of Friday's close and correspond with the stock listed in the Income Portfolio.
These changes are taking place as of today's close (for transparency purposes). You may purchase them now, just before the close, wait for a pullback later today or in the days and weeks ahead, or simply ignore our portfolios altogether. PLEASE keep in mind that the risk has absolutely been increased with the changes above. Should the S&P 500 roll over and rotation shift back to value as the bear market rages on, these adjusted portfolios are not likely to beat the S&P 500 and, in fact, could trail by a considerable margin.
Happy trading!
Tom