EB Weekly Portfolio Report - Sunday, October 16, 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 17: None
Tuesday, October 18: None
Wednesday, October 19: IBM, NDAQ
Thursday, October 20: GPC
Friday, October 21: 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:
By the time we hit Wednesday's close, the S&P 500 had fallen a 6th consecutive session with the September CPI report looming large on Thursday morning. After that came in hotter than expected, futures tanked and the S&P 500 opened at 3520 and traded intraday as low as 3491. And then we witnessed the largest intraday reversal of 2022 and perhaps the single best day, from start to finish, since March 2020. But as strong as Thursday's reversal was, Friday was that disappointing....and then some. There was no follow through, other than a small gap higher on Friday morning. From there, distribution was apparent.
Perhaps the biggest damage last week came in the form of consumer stock performance. This weekly sector summary says it all:
Overall rotation since May remains bullish, but it's important to remain objective and two ratios that have begun to turn a bit more worrisome are the QQQ:SPY and XLY:XLP. These are two solid gauges of aggressive vs. defensive and growth vs. value and both have been weak. The former has actually fallen beneath its May relative low, a bearish development. The latter hasn't broken down beneath the May relative low, but last week saw a significant turn lower.
Model Portfolio:
The Model Portfolio fell 1.90% last week, 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:
Aggressive Portfolio:
The Aggressive Portfolio tumbled 4.39% last week, significantly 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 slid 1.03% 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 lost 1.94% last week, 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
I will give a full account of our recent Model Trades in tomorrow's Daily Market Report (DMR). Currently, we have no Model Trades as both of our Friday additions were stopped out by the closing bell after wide distribution took place throughout the session. Outside of Thursday's big reversal, last week was a washout for the stock market and our trades most definitely reflected that. It's one reason why I'm sticking with ETFs. Individual stocks can provide excellent market-beating returns, but there's a flip side to that. Trying to catch bear market bottoms can be tricky, as we've seen, and individual stocks will generally be hurt much more than a diversified ETF. I tend to look more for individual stocks after an uptrend is established and we're trading above the key 20-day EMA. We still have plenty of work to get to that point.
The Week Ahead
We're getting closer and closer to the start of the best historical time of the year to trade, which occurs from the October 27th close through the January 18th close. As a reminder, this period has moved higher 62 of the 71 years since 1950. It's not a slam dunk, but the odds that we move higher is rather strong. Also, the S&P 500 is now down 25.30% since the all-time high close of 4796.56 on January 3rd of this year. There have only been 8 other bear markets since 1950 that have seen the S&P 500 drop harder. That doesn't mean we can't go down further, but it's certainly safe to say that A LOT of bad stuff is already priced into the market. Is it enough? Well, we're likely to find out over the next couple weeks.
A few large money central banks kicked off earnings season on Friday and we saw mixed reactions. Financials (XLF), overall, have been performing quite well on a relative basis, and there'll be many more financial stocks reporting this week. In addition, stocks like Netflix (NFLX) and Tesla (TSLA) will be reporting their latest quarterly results on Tuesday and Wednesday, respectively. And what can we expect of Lam Research (LRCX) on Wednesday? A competitor, Applied Materials (AMAT) already warned about its quarterly results and semiconductors are pricing in VERY bad news. Therefore, I'd expect bad news when considering LRCX. Finally, what about SNAP? Has its drop from 83.11 on its September 24th, 2021 close to Friday's close of 9.99 been warranted? That's nearly a 90% decline in a little more than a year, which is simply mind-blowing. Could they have ANY good news to share?
Oh, and I suppose I should mention that it's options expiration week. Many of these beaten-down stocks now have a TON of net in-the-money put premium. Will it matter? While nothing guarantees us an advance or decline, options expiration does have a nice history of providing us excellent directional clues. These clues point to a solid week ahead.
Let's watch and see.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."