EB Weekly Portfolio Report - Sunday, August 14, 2022

New Portfolio

I plan to unveil the beginning of a new portfolio - our Model Trading Portfolio - this Thursday when we host our quarterly "draft". The idea will be to provide trading candidates each week with weighting of each trade. The cumulative weighting of all Model Trading Portfolio stocks will never exceed 100%. In other words, we will not use margin. Stocks will generally be at least $5 and stocks will be held for the balance of the week, unless I decide otherwise. It's quite possible that many weeks we will trade less than the 100% balance, resulting in a cash position. That could certainly be the case if we head into an options expiration week with the market extremely overbought - similar to this week.

I will likely focus my selections on the following (in this order):

• Portfolio stocks
• Strong Earnings ChartList (SECL)
• Other EB.com ChartLists

Because I believe we're in a secular bull market, many of the stocks selected for our Model Trading Portfolio will be aggressive. My focus will be on NASDAQ 100 stocks, with particular emphasis on technology (XLK), consumer discretionary (XLY), communication services (XLC), industrials (XLI), and financials (XLF). I'll certainly consider stocks in other sectors, but these 5 will be my primary focus.

I'll discuss more on Thursday, so be sure to join me at 5:30pm ET that evening!

We will no longer have a Strong AD Portfolio nor an Earnings Reaction Portfolio. I'm not happy with the results over time and, quite honestly, I feel like the inclusion of too many portfolios is diluting our overall performance. Again, more on this Thursday!

Model Trading Portfolio Example

Each week in the Weekly Portfolio Report, I tend to feature one stock from each portfolio, or 5 in total. I plan to continue to do this, potentially placing these stocks, along with others, in the Model Trading Portfolio. Many times I point out breakouts or pullbacks to support that can be traded. In the future, we'll potentially be tracking these in our Model Trading Portfolio. For instance, last week the individual stocks featured were (along with their one week gains):

• UNM (Model): +8.33%
• CHS (Aggressive): +11.17%
• SCI (Income): +4.06%
• TMST (Strong AD): +6.67%
• WAT (Earnings Reaction): -0.78%

This compares favorably to the S&P 500's weekly gain of 3.26%. As with our other portfolios, our goal will be to outperform the S&P 500.

When I look outside our portfolios this week, I really like the setup of Moderna (MRNA). After gapping higher with earnings, we've seen a recent pullback to test not only the top of gap support, but also to test the rising 20-day EMA:

MRNA has a very strong AD line and also is showing considerable relative strength vs. its peers. While nothing guarantees that MRNA will head higher this week, the potential reward back to 195 seems to significantly outweigh the risk of possibly closing beneath 168.

A second trading strategy could be buying half at the current price and waiting to see if the bottom of gap support closer to 160 is tested. I don't believe it'll go there, but this strategy would be much less aggressive and give the trade a bit more room.

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 15: None

Tuesday, August 16: None

Wednesday, August 17: None

Thursday, August 18: TPR

Friday, August 19: 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 jumped another 3.26% last week and marked its third consecutive weekly close above its 20-week EMA. That doesn't normally happen in bear market environments, so arguing an ongoing bear market is becoming more and more difficult with each passing week. There was also good news as all 11 sectors gained last week. If there was one negative that I'd point out, it was that the key consumer discretionary (XLY) and technology (XLK) sectors did not provide leadership. As we head into options expiration week, I'm more than just a bit concerned short-term. I won't be surprised at all if these two sectors struggle and lead a short-term selloff. We've come a long, long way, off the June low, so we shouldn't complain too much if a bit of selling takes place. Keep an eye on the rising 20-day EMA:

The blue circles mark the 1-2-3 punch that we typically see as we rise from the ashes of a cyclical bear market. A common cyclical bear market occurrence has been a break above the key moving averages with the RSI reaching that critical 60 level (most bear markets see RSI contained at or beneath 60), followed by a pullback to test the rising 20-day EMA and with the RSI falling back to 50 or even the 40s. The final stake in the hearts of the bears tends to coincide with that third leg - the one that carries the S&P 500 to a new high and overbought conditions (RSI 70 or above).

Check mate.

Model Portfolio:

The Model Portfolio rose 3.09% last week, very slightly underperforming 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 love the breakout on ON as it continues to perform extremely well on a relative basis. I'm a bit concerned about upcoming options expiration week, but I do expect higher prices in time here:

Aggressive Portfolio:

The Aggressive Portfolio surged 4.16% 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:

Given the constant tests of overhead price resistance, excellent relative strength vs. its peers, and the strength of its AD line, it's only a matter of time before we see a breakout here:

Income Portfolio:

The Income Portfolio climbed 3.13% last week, barely 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:

The big volume and bounce off the 20-day EMA gives me hope that AMGN is just beginning an uptrend to go challenge its June high near 258:

Strong AD Portfolio:

The Strong AD Portfolio jumped 3.70% last week, slightly 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:

NOC has a ragged bullish inverse head & shoulders pattern that would confirm if NOC closes above 487. That would measure to roughly 537:

Earnings Reaction Portfolio:

The Earnings Reaction Portfolio gained 2.31% 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:

TPR is a leader in clothing & accessories ($DJUSCF), which has been a poorly performing industry group. TPR reports earnings this week, but does the excellent relative strength result in a great report or does the weak industry group prevail? TPR is trending above its 20-day EMA and it appears to be under accumulation as its AD line has been soaring over the past 6 weeks:

The Week Ahead

Get ready. If I'm right and we see options-related selling over the next week to 10 days, which could potentially be in the 4-6% neighborhood given max pain levels, watch the fear and panic spread. The media will have a party, toasting the next leg lower in the bear market. CNBC will feature their favorite bearish guests (get ready Peter Schiff!) and we'll have to deal with the emotional toll associated with such an onslaught.

I'd be willing to re-evaluate everything if the S&P 500 were to lose psychological support at 4000. Until then, I'd be cautious, but I definitely would not be bearish. Remember, there's a TON of money at stake with options expiration. We've seen this all before.

Model ETF Portfolio

Our Model ETF Portfolio gained 2.85% last week, but slightly underperformed 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."