EB Weekly Portfolio Report - Sunday, October 2, 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, October 3: None

Tuesday, October 4: None

Wednesday, October 5: None

Thursday, October 6: STZ

Friday, October 7: 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:

We saw big fundamental news over a week ago as the Federal Reserve continued hiking rates and suggesting they're not done. But this last week, it was more about technical news as our major indices broke beneath those mid-June lows. I didn't think it would happen, yet here we are. This is what the chart looks like for the S&P 500 and NASDAQ:

ALWAYS respect price/volume breakouts and breakdowns. While I don't believe we'll stay down long, I do realize the short-term is now much dicier and riskier than it was just a day ago.

Model Portfolio:

The Model Portfolio dropped 1.44% last week, easily 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 slipped 0.33% 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 lost 3.67% 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:

Model ETF Portfolio

Our Model ETF Portfolio lost 2.95% last week, very 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 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:

SJM (from SECL and RGCL):

My argument three weeks ago: "SJM is a leader in the food products space ($DJUSFP) and this industry didn't participate much last week. If things turn more defensive next week, SJM could be a beneficiary. I like two support levels. The first is gap support at 137.75. The second was the mid-August breakout above the prior price resistance at 133.91. Our strategy will be to take our full position at the opening bell on Monday, but using a second entry just below 134 makes sense too to provide a little cushion and average down. Keep in mind that SJM is on our Strong AD ChartList (SADCL). That suggests that morning weakness is buyable. Therefore, a quick selloff on Monday morning might make sense as well, but we will enter at the opening bell. Our target will be 144 and our closing stop will be tight at 137.75 gap support (from earnings)."

Result:  Despite a downtrending market, SJM was quite resilient and actually provided profit opportunities throughout our holding period. Unfortunately, it fell short of our 144 target, and we never lowered our target to capture profits. Many times, trading success is limited by the overall market performance and that was certainly the case with SJM. We entered at the open on 9/12 at 139.96 and ended up closing out the trade at Tuesday's close of 136.59, a 2.41% loss. But if we consider the 10% drop in the S&P 500 over the same period, a 2.41% loss in a defensive stock turned out to be a much better trade than more aggressive alternatives. It's never great to book a loss, but SJM was an excellent relative performer, earning a much better grade than most losing trades.

SJM actually remains a viable trade for those willing to provide the stock more room (50-day SMA and/or 133.91 price support) to the downside.

Grade: B+

TXN (from Income Portfolio, SECL, SADCL, RGCL, and BTCL):

My argument two weeks ago: "TXN is one of the best-performing semiconductor stocks ($DJUSSC) and its AD line has been very strong. I like two entries - the first at Monday's opening bell and a second entry at 160. I'd keep a very tight closing stop at 159.79. Consider a short-term price target of 172.."

Result:  Both of our entries triggered on TXN, the first at 163.58, the second at 160.00 four days later. That resulted in an average entry price of 161.79. Our closing stop was tight at 159.79, which triggered at Thursday's closing price of 158.45. The loss here was 3.34, or 2.06%. TXN's relative strength remains superb, so losses can be blamed primarily on its weak semiconductor industry group ($DJUSSC) and a weak overall S&P 500. Its relative strength, however, did keep this loss manageable and to a minimum.

Grade: C+

ENPH (from Aggressive Portfolio, SECL, SADCL, RGCL, EADCL, and BTCL):

We provided two entries for ENPH, the first at last Monday's open (277.86) and the second at 277.00. Both triggered resulting in an average entry price of 277.43. It closed at 277.47 on Friday and held up nicely, despite the obvious weakness in our major indices. Our closing stop remains 268.00. Given Friday's breakdown in the S&P 500, moving entirely to cash is not a bad idea near-term. However, we'll hang onto ENPH so long as it holds our closing stop.

Grade: Incomplete

TH (from SECL):

My argument last week: "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.

Result: Only our first entry at Monday's open (12.31) triggered, though TH did trade as low as 12.10 later that day. Our target was the 20-day EMA, which triggered when TH hit 13.01 (red arrow on chart above) on Wednesday. That resulted in a nice 5.69% return during a rather bearish week overall. Making money on long trades during a difficult week is always going to be an excellent trade.

Grade: A+

This week's featured Model Trades:

ENPH remains a carryover trade from last week as it continues to show resilience in the face of market adversity.

Given the breakdown in our major indices, I don't think setting up trading strategies and adding additional trading candidates ahead of Monday's opening bell is a good idea. We will look to provide a few Model Trades early next week (check the DMR throughout the week for potential trades). If I see a big market reversal at some point next week, I'll likely look for very aggressive trading candidates. I will also continue to seek out relative strength and relative leaders for trades as I believe they present profit opportunities with lesser risk. Until then, however, I believe it makes sense to watch and see for now.

The Week Ahead

Nothing has changed and everything has changed - all at the same time. What do I mean by that? Well, the MOST important technical indicator, in my view, is the combination of price and volume. EVERYTHING else is secondary. On Friday, we saw volume accelerate and a major price breakdown across our major indices. That's not good, no matter how many secondary signals are bullish. We MUST respect the breakdown and be more cautious from a short-term trading perspective. It doesn't mean my overall bullish view has changed, because I fervently believe Q4 will be strong and these lows will be in the rear view mirror in the not-too-distant future. But it does mean that we should protect capital short-term as Friday's breakdown could lead to additional selling. There's a reasonable chance that selling accelerates early next week after a key breakdown like this.

I grew much more aggressive on Friday morning - from a short-term trading perspective - for all the reasons I laid out in the Daily Market Report (DMR). Fear was running rampant and we were testing MAJOR price support (double bottom). There were signs of a potential top in the 10-year treasury yield ($TNX). I try to have extreme patience before growing overly aggressive. I like to either be making a key breakout - where I can exit quickly if the breakout fails - or pulling back to major price and/or moving average support. Failure to hold it, though, is a warning for me to get out, so I took the very quick loss. I never hold leveraged ETFs long-term.

The 5-day moving average of the equity-only put-call ratio ($CPCE) is now at .80 after reaching .85 at Thursday's close. ANY reading above .75-.80 can mark a very significant bottom. Can this reading go higher? Yes. But no one will hold up a sign and tell us when the top is in. We just need to be aware that sentiment has reached a level where MAJOR bottoms occur. If we see a capitulatory move lower intraday with a strong rally later in the day to print a hammer or a bullish engulfing candle, I'll be looking to get more aggressive again. Until then, I think it's best to sit back and watch - especially early next week.

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."