EB Weekly Portfolio Report - Saturday, July 9, 2022

Tom Bowley - July 09, 2022

Notes

I will be unavailable tomorrow, which is why you're receiving this EB Weekly Portfolio Report today.

Next - and VERY important - I am planning to make one more change to the Aggressive Portfolio, potentially swapping out Brigham Minerals (MNRL), a mining company, for Williams Sonoma (WSM), a specialty retailer. So MNRL will be a SELL and WSM will be a BUY based on the trading strategy and conditions provided below in the Aggressive Portfolio section of this report. All buy/sell decisions are yours, however. We use these portfolios to further our educational platform, NOT to provide investment advice. We are not Registered Investment Advisors (RIAs) and are not licensed to provide financial advice, so please consult with your investment adviser before buying or selling any securities.

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, July 11: None

Tuesday, July 12: None

Wednesday, July 13: None

Thursday, July 14: None

Friday, July 15: 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 typically 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 (but we held a "re-draft" as of the Tuesday, June 21st close; members may choose to try to time better entries, but EB.com originally "purchased" as of May 19th's closing prices, then as of June 21st closing prices for the re-draft
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:

U.S. equities rallied last week, but it was not broad based. The good news is that the only sector we avoided in our latest Model ETF Portfolio was utilities (XLU), which trailed the other 10 sectors:

Money rotated strongly last week into our 3 aggressive sectors - consumer discretionary (XLY), technology (XLK), and communication services (XLC). The top 5 industry groups were areas that typically lead the stock market higher during secular bull market advances. Here they are:

Automobiles ($DJUSAU): +9.28%
Internet ($DJUSNS): +8.81%
Renewable energy ($DWCREE): +8.74%
Recreational products: +7.60%
Semiconductors: +7.08%

It's been awhile since we've seen significant leadership in these areas. Here's an S&P 500 chart with the relative strength of each in panels beneath:

During the day-to-day and even hour-to-hour action, it's difficult to see much other than what the major indices are doing. The above helps to show us rotation much clearer. Of these 6 key industry groups, 5 of them bottomed on a relative basis BEFORE the S&P 500 bottomed. In other words, as the S&P 500 drifted lower during the first half of June, Wall Street was repositioning in these growth areas. That should make us at least think "MARKET BOTTOM".

Model Portfolio:

The Model Portfolio jumped 2.71% last week, outperforming 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:

UPWK has been very solid since we added it to our Model Portfolio during our recent changes. It did, however, hit a key area of price resistance, so its gains could be limited until it can break through:

Aggressive Portfolio:

The Aggressive Portfolio climbed 1.06% last week, underperforming 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:

I discussed MNRL last week, pointing out the potential topping head & shoulders pattern. Given the more bullish environment that we appear to be rotating to, I don't like MNRL and I don't want to hold it through August 19th. The chart looks very bearish to me and I'd be more comfortable holding a consumer discretionary stock.

Therefore, we will exit MNRL on either a test of the declining 20-day EMA (currently 26.24) or on a close beneath 23.50. We will take those proceeds and use them to purchase Williams Sonoma (WSM), a specialty retailer. Here's a current chart of WSM:

Feel free to do whatever you wish, but for our tracking purposes, we'll follow the strategy outlined above. If the MNRL sell and WSM buy are triggered, I will try to report it in the very next DMR after the transactions are triggered. I'm not always following individual stocks that closely, however, so even if I don't report it in the DMR, I will account for it in our portfolio performance.

Income Portfolio:

The Income Portfolio rose 0.89% last week, underperforming 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 surged 3.58% last week, easily 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:

TAP had a big run in the latter half of June, but printed an ominous reversing black candle on a failed breakout attempt on June 28th. As expected, it's pulled back, but it is still holding key 20-day EMA support. A close above 57 would confirm the current uptrend and I'd expect higher prices ahead:

Earnings Reaction Portfolio:

The Earnings Reaction Portfolio gained 1.47% last week, but underperformed 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:

DUOL was added to our Earnings Reaction Portfolio a few weeks ago, because of its improving price performance, solid volume trends, rising AD line, and multi-month relative high vs. its software peers. They all remain, except for the strong AD line as it's pulled back considerably. I'm still a big, big fan of DUOL and believe we're going to see higher prices ahead:

The Week Ahead

Sector rotation is critical to the notion that the 9-year secular bull market that began in April 2013 is resuming and that the cyclical bear market has ended. Therefore, let's check out the current look of the S&P 500 vs. our primary aggressive sectors - XLK, XLY, and XLC:

Listen, I understand if you're skeptical about the market bottom. There's still a lot of negative news and uncertainty in the stock market right now. Alls I can tell you is that if we're heading lower, it's nearly imperative that the above 3 ratios - XLK:$SPX, XLY:$SPX, and XLC:$SPX - move to new lows as these are the groups that should underperform if economic conditions worsen. If the S&P 500 heads lower again and breaks down and these relative ratios continue to hold onto relative support, then I believe any such move lower should be viewed as temporary with a significant rebound likely. If, however, these relative ratios break down to new lows, that opens the door to lower S&P 500 prices - sustainable lower prices.

Model ETF Portfolio

Our Model ETF Portfolio rose 2.44% last week, outperforming 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."