EB Weekly Portfolio Report - Sunday, July 24, 2022

Tom Bowley - July 24, 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, July 25: None

Tuesday, July 26: MSFT, KO, MCD, ADM, ENPH, KMB

Wednesday, July 27: BMY, UPWK, GPC

Thursday, July 28: AAPL, MRK, NOC, WELL, JKS, LNTH, ARCH

Friday, July 29: WPC

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:

Well, our benchmark had closed the previous week just barely above the 50-day SMA, so the objective last week was rather clear. Build on those gains. I'd say we were successful after an early failure on Monday. U.S equities finished on or close to their highs of the day on Tuesday through Thursday, separating from the 50-day SMA. We saw some weakness on Friday, but still managed to close the week with a gain of more than 2.50%.

Wall Street was in a "risk-on" mood last week and you can see that in the weekly sector summary:

One thing that really stands out to me is the disparity in the consumer stocks. Discretionary (XLY) gained a staggering 6.84%, while the more defensive staples (XLP) barely gained any ground. This is a clear signal that Wall Street preferred aggressive stocks. That's been a theme since my market bottom call in mid June.

Model Portfolio:

The Model Portfolio jumped 3.74% 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:

I featured UPWK two weeks ago, pointing out the overhead price resistance that it was up against. Well, that turned out to be quite timely as UPWK pulled back to potentially print a reverse right shoulder. The next test of price resistance is likely to be more successful:

Aggressive Portfolio:

The Aggressive Portfolio gained 3.23% 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:

VEEV is one of the strongest software stocks, but it hit key price resistance on Friday and failed. Maybe we break through this week, but there is certainly an argument that neckline resistance was tested and that we now need a bottoming right shoulder to print:

Income Portfolio:

The Income Portfolio fell 0.14% 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:

GPC made a very nice breakout last week and that suggests to me that a new uptrend has begun and that a pullback to back test the breakout level could be bought:

Strong AD Portfolio:

The Strong AD Portfolio rose 0.16% 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:

JKS underperformed last week, but certainly appears to be poised for a strong recovery off its 50-day SMA and channel support:

Earnings Reaction Portfolio:

The Earnings Reaction Portfolio gained 2.20% last week, slightly 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:

LRN didn't finish the week very well, but after spending a few months with overhead price resistance in the 40-42 range, I'd fully expect to see this range act as solid price support in the future. We're now testing the upper edge of that range now:

The Week Ahead

Roughly one-third of our portfolio stocks will be releasing their latest quarterly earnings in the week ahead, so that will largely drive our short-term performance. Technically, the big question for the overall market is.....has the secular bull market resumed? Well, there are short-term signals that suggest it's quite possible, but the true test is on the first extended period of selling. Trendless markets will see failures at the key 20-day EMA and critical short-term price support levels. Here's the S&P 500 chart and the key support I'll be watching during any upcoming weakness:

This chart really sums things up for me. There are plenty of positives, but nothing that confirms that the next leg of the secular bull market has begun. I love the renewed relative strength of technology (XLK) and consumer discretionary (XLY). Communication services (XLC)? Not so much, but it is at least holding onto the relative support established in late April.

To the upside, I believe a breakout above 4200 is the key and would be extremely bullish. To the downside, watch price support near 3920 and the two key moving averages - the 20-day EMA and 50-day SMA at 3888 and 3919, respectively. Currently, I'm looking for the S&P 500's advance to continue. The trading range I'm expecting during earnings season is 3888 (rising 20-day EMA) to 4200. If we break beneath 3888 on a closing basis, then I'll re-evaluate based on all of my signals at that time.

Model ETF Portfolio

Our Model ETF Portfolio gained 2.92% 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."