EB Weekly Portfolio Report - Sunday, August 7, 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 8: None
Tuesday, August 9: WELL, SMCI, LRN
Wednesday, August 10: None
Thursday, August 11: None
Friday, August 12: 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:
The S&P 500 hesitated last week, gaining less than 1% as hundreds of companies reported quarterly results and as the latest nonfarm payrolls was released. Jobs came in much, much stronger than expected, suggesting this recession very well could be a soft landing and an abbreviated version. The 10-year treasury yield ($TNX) surged on the Friday news, but it clearly remains in an overall downtrend off the June high of 3.48%. The TNX finished last week at 2.84%. Meanwhile, rotation continued to favor the bulls and the resumption of the secular bull market. It may not seem like much, and CNBC never discusses it, but check out last week's sector performance:
Energy, materials, and two defensive groups are at the bottom of the sector performers from last week, while four aggressive sectors were on top. So, even while mostly churning, Wall Street continues to reposition in aggressive areas. This is one signal that suggests we're going higher.
Another huge indicator to keep an eye on is the XLY:XLP ratio that keeps us informed as to how Wall Street is positioning between discretionary and staples stocks. It's hard to bet against the stock market when we see this ratio breaking out to confirm the S&P 500 rally:
There are short-term issues that could lead to some near-term selling and/or consolidation, but I just don't see an extended downtrend that spans weeks, potentially establishing a double bottom in the 3600s. Is it possible? Sure. Is it probable? No.
Model Portfolio:
The Model Portfolio rose 2.27% 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:
UNM's gains came on Wednesday after quarterly results were released. While the jump in price was certainly welcome, UNM still must negotiate overhead price resistance near 37:
Aggressive Portfolio:
The Aggressive Portfolio jumped 2.66% 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:
CHS has given us a few scares since adding it to the Aggressive Portfolio in June, but last week's breakout suggests it may have been worth the wait:
Income Portfolio:
The Income Portfolio lost 1.36% 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:
SCI tumbled last week on earnings and now faces critical price support in the 63-64 area:
Strong AD Portfolio:
The Strong AD Portfolio tumbled 3.77% last week, badly 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:
TMST has lost a lot of relative strength and it's also at a key price support level just above 16:
Earnings Reaction Portfolio:
The Earnings Reaction Portfolio gained 0.11% 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:
I fully expect to see WAT recover in the week ahead. I love Friday's reversing candle off 50-day SMA support, along with an exceptionally strong AD line:
The Week Ahead
My biggest question right now is whether current negative divergences on hourly charts wind up with more selling in the week ahead. Slowing upside momentum has become a fairly serious issue across so many areas of the market that it's highly unlikely that we will not be affected. I'm most interested in growth stocks and the following relative chart, comparing large cap growth to large cap value (IWF:IWD) is showing that even relative momentum could use some unwinding:
The previous two hourly relative negative divergences resulted in underperformance by growth stocks for a period of time. If we do see a period of relative weakness, however, don't expect it to last. August has been a very strong month for the relative performance of growth stocks over the past 5 years (2017 through 2021):
The average relative outperformance during this 5-year period is 3.4%, the highest of any calendar month. August is also the only month, besides January, that has shown relative strength in each of the last 5 years.
Model ETF Portfolio
Our Model ETF Portfolio gained 1.00% 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."