EB Weekly Portfolio Report - Sunday, July 31, 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, August 1: ON
Tuesday, August 2: CAT, WAT, TAP, SCI, UNM
Wednesday, August 3: MET, WTRG
Thursday, August 4: AMGN, RSG, K, NRG, DBX, RGA, LNTH, IRTC, DUOL, TMST
Friday, August 5: 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:
It was another very strong week for U.S. equities, so on the surface it's difficult not to be bullish about the 2nd half of the year. However, it's not a no-brainer. Leadership last week was all over the place. I normally like to see technology (XLK), consumer discretionary (XLY), and communication services (XLC) in leadership roles. That wasn't the case last week as you can see from the weekly sector leaderboard below:
None of the three key aggressive sectors resided in the Top 3, so what should we make of that? Well, first I'd suggest that we understand both the XLY and XLK had strong weeks and outperformed the benchmark S&P 500's gain of 4.26%. Let's be clear that last week was NOTHING like what we saw in December 2021, where those 3 aggressive sectors lagged badly. The other very significant positive last week was the relative strength of discretionary stocks vs. staples stocks (XLY:XLP):
I also was impressed by the successful test of the rising 20-day EMA, but the big corroborating signal that the secular bull market is resuming was the breakout of my favorite sustainability ratio, the XLY:XLP.
Model Portfolio:
The Model Portfolio rose 1.67% last week, but underperformed the S&P 500 badly. Here's the updated inception-to-date chart of the portfolio:
Here are how the Model portfolio component stocks performed last week:
ULTA didn't have a very good week, but trips down to the 370-378 range should be considered excellent trading opportunities until further notice:
The loss of gap support closer to 365-366 would be the level of my closing stop, while I'd expect to see a rally back to test the April high near 435.
Aggressive Portfolio:
The Aggressive Portfolio surged 6.04% last week, easily 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:
Sometimes absolute price weakness can be very misleading. Let's take KMB as an example:
Nondurable household products ($DJUSHN, -6.09%) had a very poor day on Friday, but KMB managed to hold its own and broke out relative to its peer group, while hanging onto key recent price support just below 130. Also, check out its AD line, which is surging. From a trading perspective, I'd like to see KMB hold that price support, but longer-term, the AD line rising is likely a very bullish signal for the stock.
Income Portfolio:
The Income Portfolio gained 3.90% last week, but underperformed the S&P 500.
Here's the updated inception-to-date chart of the portfolio:
Here are how the Income portfolio component stocks performed last week:
AMGN was flat last week, but it reports quarterly results on Thursday this week. It's been a solid relative performer vs. biotechs ($DJUSBT) year-to-date, so I'm expecting to see good news with its earnings. Here's the current technical outlook:
Like KMB, AMGN shows a very strong AD line. Its relative weakness the past couple months follows exceptional relative strength prior to that. Its current price action is solid, trending just above its 50-day SMA.
Strong AD Portfolio:
The Strong AD Portfolio jumped 5.58% last week, 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:
IRTC reports quarterly results this week and it ought to be VERY interesting. Medical equipment stocks ($DJUSAM) have not exactly been in favor as they trade close to a 52-week relative low. But IRTC has been a tremendous relative performer in the space. In addition, its AD line is at a fresh high:
I love the look of this chart and I'm anticipating an excellent quarterly report. But we won't know for sure until Thursday.
Earnings Reaction Portfolio:
The Earnings Reaction Portfolio gained 1.45% last week, badly lagging the S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Earnings Reaction portfolio component stocks performed last week:
ARCH had a bad week last week, clearly underperforming our benchmark index. But Friday's reversing candle could suggest a reversal is in store:
A close beneath 125 and I'd grow much more pessimistic on ARCH. But we've already seen multiple successful tests of this key price support. The hammer that printed on Friday could easily result in a quick rebound to the 140 level. But, if you're trading ARCH, don't let your guard down. This one can be extremely volatile and sellers could pile on if we see a loss of price support.
The Week Ahead
This is going to be another HUGE week of earnings for our portfolios, especially on Thursday, where we'll see 10 of these stocks report quarterly results. Nearly 1500 companies will report earnings results in total. Volatility could easily grow, given all the opportunities for earnings misses (and beats).
We have entered a mostly bearish historical period (August and September), however, with the Volatility Index ($VIX) at its lowest level since April:
As you can see, the 9-month trendline, which held throughout the cyclical bear market, broke down last week and adds one more check mark in the bull's column. As fear dissipates, bull markets expand. If the bears cannot regain control of the action this week, I see it getting only more and more difficult as the weeks pass.
Model ETF Portfolio
Our Model ETF Portfolio gained 3.74% last week, slightly 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."