EB Weekly Portfolio Report - Monday, May 22, 2023
Live Trading Room This Week
We'll be having our second LIVE Trading Room on Wednesday, May 24th. It's for Annual Members only, but this is a great time to save a TON of money by becoming an Annual Member at heavily-discounted prices and enjoy a trading session that's surely going to provide you with excellent tips and trading ideas and loads of education. To learn more about our Spring Special, CLICK HERE.
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, May 22: None
Tuesday, May 23: None
Wednesday, May 24: None
Thursday, May 25: None
Friday, May 26: 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 likely 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
- All portfolio stocks were announced on Thursday, May 18th, and were all entered into as of the close on Friday, May 19th for tracking purposes
- 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:
- S&P 500: +1.65%
- Model Portfolio: 0.85%
- Aggressive Portfolio: 1.48%
- Income Portfolio: 2.44%
- Model ETF Portfolio: +2.54%
Weekly Summary
Benchmark S&P 500:
The big news last week was the NASDAQ 100 ($NDX) clearing its August 2022 high, becoming the first of our major indices to end the cyclical bear market series of lower highs and lower lows. The fact that it was led by semiconductors ($DJUSSC) makes it even more bullish. The DJUSSC, in my opinion, is the most important industry group to follow. Companies in this industry can see their profits fluctuate wildly, so when the group begins to trend higher, we should always take notice as it's likely a signal of much more bullishness ahead. Check out the DJUSSC chart:
You can from the bottom panel that the DJUSSC has been outperforming the S&P 500 since October 2022. Automobiles ($DJUSAU) and internet stocks ($DJUSNS) were also major contributors last week, gaining 5.95% and 4.58%, respectively. Throw in a nice, short-term rebound in banks ($DJUSBK) of 4.82% and it all added up to another excellent week for the bulls.
Model Portfolio:
The Model Portfolio climbed 0.85% 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 jumped 1.48% last week, slightly 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 rose 2.44% 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 gained 2.54% last week, significantly 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 Trade Setups
I will provide Model Trade Setups 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. I may provide follow-up on some or all of these setups in the Daily Market Report (DMR). I'll also provide full disclosure, if I own any of the setups provided. Feel free to trade these Model Trade Setups based on the annotated charts provided, 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 Setups
We decided to only hold one trade candidate into last week, as we had key overhead price resistance to deal with, along with options expiration. Our one candidate, EPAC, had a nice positive divergence in place and we thought there was more room to the upside. Fortunately, that's what we saw:
EPAC:
EPAC turned out to be a very nice trade. When trading a stock with a positive divergence, I look for a 50-day SMA test and/or a PPO centerline test (blue arrows). We've now seen both. Closing out this position makes sense. It certainly could go higher, but the volume that accompanied the move higher the past couple weeks has been unimpressive. I'd take the money and run.
This Week's Setups
Every week, I will provide setups among our Portfolio stocks and our ChartList stocks. My preference is to trade Portfolio stocks, when appropriate. These stocks are in our portfolios for a reason - they're generally leaders within leading or improving industries.
Growth remains the leader, easily outpacing value throughout 2023. I expect that to continue during the balance of 2023, but there will be pockets of relative weakness. We're at a time of the calendar month when value tends to outperform growth, which includes both monthly options expiration week and the 2-3 trading days that follow this expiration. But I'm not going against what the market tells me, which is to own growth stocks. Could we be hit a little short-term? Sure, but I don't think it lasts. So I'll take on my first "long-term" trade in over a year. I think the recently muddied waters are getting clearer and clearer, but there will always be more inherent risk in selecting individual stocks. Still, we do plenty of research at EarningsBeats.com to enable our members to find solid reward-to-risk trading candidates. Let's do one long-term trade here and I'll report on it every week until it either hits our significantly higher target, or it reaches our stop level:
DKNG:
I like strong momentum. I like strong AD lines. I like excellent relative strength. When I look at this DKNG chart, I think "check, check, and check". Is it overbought? Yes. But to trend trade, this is the type of stock I like to trade. Let's try a longer-term swing trade on this one. Let's jump in at the current price (I just bought at 25.98). My plan is to sell IF DKNG closes beneath 22.50. Otherwise, I will hold on long-term. My ultimate goal would be the high from March 2021 near 75. We'll follow this one in the EB Weekly Portfolio Report until it stops or until we take profits. I'll report on it each week.
The Week Ahead
When I say that it's difficult to short a bull market advance, last week is a perfect example of what I'm talking about. There were a number of reasons to take the opposite side of the trade, yet shorting simply didn't work. I try not to fight a bull market. My strategy is generally to stick with ETFs like the QQQ (tracks the NASDAQ 100) and, if we see a period of selling up to maybe 5%, think about selling a bit of the QQQ and building a leveraged 2x (QLD) or 3x (TQQQ) position in the underlying NASDAQ 100 ($NDX) index.
There won't be a lot of economic news this week and earnings are slowing considerably. That leaves the market to trade mostly on its current technical signals. They're almost all bullish, as far as I'm concerned. The beginning of this week could be dicey due to the aftermath of monthly options expiration, but many times a bull market is relentless and takes no prisoners. One negative technical that I'll point out is that 60-minute negative divergences are printing or are about to print. Look at the technology sector (XLK) as an example:
60-minute divergences are not perfect predictors, they only tell us that short-term risk is elevated. Personally, I believe the risk of missing a continuing bull market move higher is a bigger risk than a potential 1-3 day pullback. So I want to remain long. However, I'll stay away from leveraged ETFs at this point, because of the heightened risk. Not every risk is the same. 60-minute divergences are very short-term risk, while something like massive rotation from aggressive sectors to defensive sectors could be suggesting very long-term risk associated with cyclical bear markets.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."