EB Weekly Portfolio Report - Saturday, September 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, September 26: None
Tuesday, September 27: None
Wednesday, September 28: None
Thursday, September 29: None
Friday, September 30: 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:
The big news last week was the Fed meeting and policy statement on Wednesday afternoon at 2pm ET. The volatility after that meeting and into Wednesday's close was insane as the S&P 500 fell 1.7% in the first 10 minutes after the announcement of another 75 basis point hike. As Fed Chief Powell began to speak, even saying that the Fed's rate hikes were starting to take effect, the S&P 500 rallied strongly, surging 2.2% and temporarily clearing key price resistance at 3900. But that didn't last as the sellers had the last word on Wednesday. In the final 75 minutes of trading, the S&P 500 fell from 3907 to close at 3790, resulting in a final drop of more than 3% in just over an hour. It's typical to see volatility after a Fed meeting, but this volatility was on steroids. At the end of the day, we closed on the low and failed on the breakout attempt at 3900. Not good.
Weakness on Thursday and Friday was evident, but as has been the case since May, the selling mostly occurred at the opening bell and during the early morning session. Friday's final hour rally was very important technically as the S&P 500 fell as low as 3647, just 11 points away from the June 17th intraday low. I like to watch closing levels, however, and the low close back in June was 3666. So with an hour to go on Friday, the bulls either had to rally or be subject to a very big technical breakdown. The bulls were up to the challenge as the S&P 500 mustered a nice end-of-day rally to close at 3693, a bullish kick save. Here's how the S&P 500 looks after last week's overall drubbing:
Model Portfolio:
The Model Portfolio fell 3.97% 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 dropped 7.94% last week, underperforming 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 lost 4.59% last week, outperforming 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 lost 4.62% 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 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 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 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 Model Trades
These were the trade setups from last week:
NET (from RGCL and EADCL):
My argument last week: "Last week, after enjoying nice profits on NET from the week prior, I indicated that if we saw a bad week, a stock like Cloudflare (NET) could easily give ALL of its gains back. Well, it did just that and underscores the potential short-term benefits of trading vs. buy-and-hold. NET has returned to key gap support, so we'll enter again at Monday's open and sell on any close beneath 58.00. Our target will be 66. If the S&P 500 continues to sell off, we want to make sure we limit our losses on a growth stock like NET. It's high risk, but also high potential reward."
Result: We entered NET on Monday's opening price of 58.45. It traded as high as 65.29, coming within a whisker of our 66.00 target. But after Wednesday's Fed announcement, many growth-oriented stocks sold off hard and NET fell subject to that. It closed on Thursday at 56.92, beneath our closing stop of 58.00, but we ended up taking a loss of 1.53, or 2.62%. From our entry price to the Wednesday high, NET gained 11.02%, providing opportunity for a solid trade. While our scorecard will reflect a loss, NET was a much better trade than we'll get credit for. Also, our closing stop protected us from further 4.37% decline on Friday.
Grade: B
SJM (from SECL and RGCL):
SJM has been an excellent trade. It's still alive and we'll carry it into a third week next week. Our target remains 144.00 and our closing stop is any close beneath 137.75. The S&P 500 has lost 375 points in the past two weeks, underscoring the relative strength of SJM. For a look at the current chart, check out upcoming Model Trades below.
Grade: Incomplete
STZ (from Model Portfolio, SECL and SADCL):
My argument two weeks ago: "Entry prices help to dictate the risk you're willing to take. For example, to lessen risk, you can wait to enter STZ in the key support zone from 240.00-242.50. But what happens if it doesn't get there? Well, that's a risk too. This will be our strategy: Entry 1 - opening price on Monday morning. Entry 2 - 240.30. Closing stop: 239.84. Target: 258.00. A quick look at max pain would support buying at our two entry points as max pain is near 250."
Result:
We suggested two entries - the first was 245.00 (the opening price suggested) and the other was 240.30, providing an average entry of 242.65. Our closing stop was originally 239.84, but we modified it last week to a close beneath 239.25 or any INTRADAY low beneath 236.50. Our target was 258. This was a defensive trade, being a bit cautious in the face of recent market weakness, the historical bearishness of September, and the Fed meeting which was just held. We were stopped out on Wednesday's close of 238.87, which resulted in a modest loss of 3.78, or 1.56%. Given the defensive nature of the trade, modest loss, and the prevention of further decline (STZ fell another 3% the past two sessions), I rate this trade above average, despite the loss.
Grade: B
TXN (from Income Portfolio, SECL, SADCL, RGCL, and BTCL):
Semiconductors ($DJUSSC) moved to new 52-week lows last week, but TXN held support and showed tremendous relative strength. We will hold it into next week. See below for more information.
Grade: Incomplete
This week's featured Model Trades:
I discussed the potential issues as we headed into last week and they all proved to be too much for the bulls to overcome as the S&P 500 lost more than 5%. We did manage to hold price support at 3666, after briefly falling beneath it intraday on Friday. I would ordinarily expect a bounce after a technical hold like that. We do have to negotiate the final couple days of the bearish summer season that ends early next week. But then I'd expect traders to focus on earnings, which typically results in an advance. We had four Model Trades heading into last week - all with fairly tight stops. Despite these tight stops and a very weak market, two of our four trades stayed alive and will carry over into this week. I've added two additional trades as well.
SJM (from SECL and RGCL):
The move to more defensive stocks the last couple weeks was a good one. SJM held onto its gap support, barely losing any ground on the week and gaining much more relative strength vs. its food products peers ($DJUSFP). We'll keep our closing stop at 137.75 and our target at 144.00.
TXN (from Income Portfolio, SECL, SADCL, RGCL, and BTCL):
TXN is one of the best-performing semiconductor stocks ($DJUSSC) and its AD line remains very strong. Both of our entries triggered last week - the first at Monday's opening bell (163.58) and our second entry of 160 hit intraday on Friday. That's an average entry price of 161.79. Friday's close of 161.29 means we're down just .50 during a week that was not at all kind to the DJUSSC as it lost 6%. TXN's relative strength is growing even stronger. We're keeping our very tight closing stop at 159.79 and our short-term price target at 172.
ENPH (from Aggressive Portfolio, SECL, SADCL, RGCL, EADCL, and BTCL):
ENPH is an extremely aggressive trade. It fell 40 dollars in just two days last week, so please understand the risk you're taking if you decide to trade this one. After the big push higher in late July, ENPH pulled back on a few different occasions in late August and early September, printing its lowest candle body at 276.05 on August 22nd. I'd like to give ENPH a bit more room, because it is volatile, so we'll enter ENPH on the Monday open and again at 277.00, with a closing stop of 268.00. Our target will be the 20-day EMA, currently 298.39.
TH (from SECL):
I love the volume that poured into TH during its uptrend in July. Since then, it's been consolidating in sideways, rectangular fashion, with key price support at 11.86. I like two entries - the first at Monday's open and the second at 11.86. I'd keep a tight closing stop beneath 11.86 and my initial target would be the 20-day EMA, currently at 13.18. TH should also be viewed as an aggressive trade.
The Week Ahead
For me, it's all about whether S&P 500 support holds. Closing support is 3666 and intraday support is 3636. If these support levels are lost, we need to be extremely cautious. It's that simple. The reasons why I called a market bottom in mid June are even stronger now. When price returns to an earlier level, it's an opportunity to look at various relationships to see how they've changed. Has money rotated towards offense or defense? Growth or value? It's clear to me that Wall Street continues to move even more decisively into aggressive areas. Check out one of my favorite, yet very simple, charts to highlight consumer discretionary vs. consumer staples (XLY:XLP):
This rotation is EXACTLY OPPOSITE what we saw in December as the stock market topped. Wall Street began rotating away from the XLY and into the XLP. That marked the top. Now we're seeing Wall Street rotate INTO the XLY and OUT of the XLP as the S&P 500 returns to its prior low. I find this to be a very bullish development. This XLY:XLP ratio could break down again and, if it does, it would be much more bearish. But for now, Wall Street firms believe we're going to go higher and they're positioning more aggressively for that.
Also, keep in mind that September is almost over. The historical bearishness turns to bullishness in Q4, especially from the close on October 27th through the close on January. During this period, the S&P 500 has climbed 62 of the 71 years since 1950. That's 62 out of 72, a rather high percentage. While we end the most bearish historical period of the year on Tuesday, we'll soon be beginning the most bullish historical period. It's also important to note that the S&P 500 has a strong history of rising into the start of earnings season, which begins in mid October.
I believe this bearishness will soon pass, but we need to keep our guard up in the short-term, especially if we lose the key support levels identified above.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."