EB Weekly Portfolio Report - August 28, 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 29: None
Tuesday, August 30: None
Wednesday, August 31: CHS
Thursday, September 1: None
Friday, September 2: None
PLEASE NOTE: The above companies were provided using 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 Friday, August 19th
- 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 and Aggressive Portfolios should be viewed similar to aggressive growth funds; they will typically have a lot of volatility and periodic drawdowns can be significant from time to time
- 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 two; 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:
There was some back and forth last week, but the truly big day was Friday. Fed Chief Jerome Powell made very strong comments about remaining aggressive in the Fed's fight against inflation during his Jackson Hole speech and the stock market did not react kindly. It was one of the worst days of 2022 and the selling was uninterrupted. It was an all-day distribution event. Here are how the sectors fared last week:
Energy was the only sector to end the week in positive territory. Note that the 3 worst sectors included technology (XLK), consumer discretionary (XLY), and communication services (XLC). Clearly, the stock market turned to "risk-off" mode last week and, if that continues, could lead to a test of the mid-June low. I don't believe that'll be the case, but it would be foolish to completely ignore the technical damage inflicted by Fed Chair Powell's comments.
Model Portfolio:
The Model Portfolio lost 2.35% 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:
Aggressive Portfolio:
The Aggressive Portfolio slid 0.26% last week, significantly 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:
Income Portfolio:
The Income Portfolio fell 3.40% last week, but did outperform 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:
Model ETF Portfolio
Our Model ETF Portfolio fell 4.37% last week, slightly trailing the S&P 500.
Here's the updated inception-to-date chart of the Model ETF Portfolio:
Here are how the Model ETF Portfolio components performed last week:
Model Trades
I will provide Model Trades each week in this Weekly Portfolio Report, which will simply be to outline possible trades based on key support, resistance, relative strength, and where these trades come from. For instance, my trading strategy for Strong AD ChartList (SADCL) stocks might be completely different than my trading strategy on Strong Earnings ChartList (SECL) stocks. Obviously, it would be different from a Short Squeeze ChartList (SSCL) trading candidate. I'll lay out the annotated chart and my reasoning for the (potential) trade. In the following week's EB Weekly Portfolio Report, I'll grade each of the prior week's Model Trades. Grades will generally be based on how these trades performed relative to the S&P 500. Feel free to trade these stocks in a similar manner or according to your own trading strategy. Or completely ignore them. It's completely up to you. I am not a Registered Investment Advisor (nor is EarningsBeats.com). THESE TRADING CANDIDATES SHOULD NOT BE VIEWED AS INVESTMENT ADVICE.
I view EarningsBeats.com as a market research, market guidance, and market education platform. We do not attempt, in any fashion, to manage anyone's money. We have no idea of the risk tolerance of each of our members, nor do we have any idea of your financial goals and objectives. It would be irresponsible for us to provide advice to any of our members. Therefore, please consult your own financial advisor before considering any buy/sell decisions. You are completely responsible for the financial decisions that you make.
Last week's featured charts
CDNS (from Model Portfolio):
My argument last week: CDNS has been an excellent absolute and relative performer off its bottom back in May. I like the 20-day EMA test here, and you can keep the risk to an absolute minimum. If CDNS closes beneath its 20-day EMA, consider using a closing stop. There is a negative divergence in play here, but CDNS broke out on strong volume when that divergence printed. I tend to ignore these divergences AS LONG AS THE 20-DAY EMA HOLDS AS SUPPORT.
Result: CDNS closed on Tuesday and Wednesday just beneath its 20-day EMA, resulting in a sell for a minor loss.
Grade: C
NDAQ (from Model Portfolio):
My argument last week: Ditto CDNS, minus the negative divergence. NDAQ has been a huge winner in the investment services area, so trading it off its initial 20-day EMA with minimal risk seems like a no-brainer. A stop could be considered on any close beneath the 20-day EMA.
Result: NDAQ was probably the best performer of the four provided last week. There were profit opportunities, though key price resistance was never reached. The close on Friday was beneath the 20-day EMA, resulting in a stop being triggered and a minor loss absorbed.
Grade: B-
NXST (from Income Portfolio):
My argument last week: NXST is another 20-day EMA test. These are my absolute favorite trades, especially when it's the very first 20-day EMA test since the strength began. I can keep my stop very tight with any close beneath the rising 20-day EMA. In the case of NXST, you could use price support just beneath the 20-day EMA. That's really just a personal preference and up to each trader.
Result: I mentioned both the 20-day EMA and price support as possible closing stop levels. If you chose the former, then NXST would have been stopped out at 192.43 on Wednesday's close. If you chose the latter, then NXST would have been stopped out at 191.85 on Friday's close. In either case, this trade would have resulted in a minor loss.
Grade: B-
A (ran 20-day EMA scan vs. SECL):
My argument last week: After gapping up several days ago with stronger-than-expected earnings, A has worked its way back down to both gap support and 20-day EMA support. I love the reward to risk on this one. If it closes beneath 132, I'd exit. Otherwise, I'd look for a return trip back to its opening price after earnings, or 148.84.
Result: I really felt solid about this trade and the initial reaction off support was quite bullish. However, the Friday selling left no stock behind and A simply succumbed to overall bearishness in the market and was stopped out at Friday's close for a minor loss.
Grade: B-
This week's featured Model Trades:
Given the heavy selling on Friday, and the fact that the market closed almost squarely on its low, I think it's best to hold off announcing any Model Trades until we at least see how everything is trading on Monday morning. So look for Model Trades to be announced in a Daily Market Report (DMR) this week.
The Week Ahead
I've had some time to think about Fed Chair Jerome Powell's speech from Jackson Hole on Friday morning and I've been trying to decipher the stock market's reaction. Powell indicated that the Fed would remain on inflation watch and would not consider backing off rate hikes until there was mounting evidence that inflation was under control. He said the Fed would not back off its current policy based on one month of encouraging inflation data. I assumed this was in response to the better-than-expected CPI and PPI data for July. The part that's really difficult to reconcile is that the Fed seems to be MUCH more worried about inflation than the stock market. Gold ($GOLD) continues to perform very poorly vs. the S&P 500 on a relative basis. It should be soaring relative to the S&P 500, just like it did back in the 1970s. But it's not.
Second, the U.S. Dollar Index ($USD) is at an 11-year high. Why would anyone buy our currency if inflation were truly a problem. This leaves me wondering if the stock market's reaction to Powell's speech was NOT about inflation worries, but rather about Fed worries - that maybe they're going down the wrong path. Further rate hikes will only slow the economy further, which already has seen its second consecutive negative GDP reading. And have you noticed inventories the past two months? They've been rising to tune of 1.5% each month. Rising inventories, combined with slowing demand, can lead to DEFLATION, which is a bigger problem than INFLATION. Is Wall Street growing tired of and/or losing confidence in this Fed?
I don't know, but it's something to think about. I will say this, though. Since the rally began off the mid-June low, the technical condition has not been worse than how it finished on Friday. The bears are in control as we begin a new week. Until our major indices can clear their respective 20-day EMAs, I'd be MUCH more cautious.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."