EB Weekly Portfolio Report - Sunday, July 23, 2023
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, July 24: CDNS
Tuesday, July 25: GOOGL, MSFT, PHM
Wednesday, July 26: CMG, META, LRCX
Thursday, July 27: LYV, FSLR, SKX, CMCSA, GWW, WST
Friday, July 28: 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: +0.69%
- Model Portfolio: -1.91%
- Aggressive Portfolio: -0.84%
- Income Portfolio: -1.04%
- Model ETF Portfolio: +1.52%
Weekly Summary
Benchmark S&P 500:
The S&P 500 ($SPX, +0.69%) did manage to post a gain last week, but the weekly performance really masked the weakness that we saw during the latter half of the week. After peaking on Wednesday at 4578, the S&P 500 steadily declined through Friday, working off its short-term momentum issues in the process, namely the hourly negative divergence that had printed on that Wednesday high:
While the very short-term momentum issues have been resolved, it does not mean that the selling is behind us. In fact, in my discussion for next week below, I'll delve into the negative divergence on the S&P 500 daily chart, which could result in further selling and consolidation for another 1-2 weeks.
Model Portfolio:
The Model Portfolio fell 1.91% 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 lost 1.04% 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 rose % 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 1.52% last week, easily 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:
NOTE: There's no way on StockCharts for me to highlight how each of the component ETFs performed on Monday and Tuesday. Keep in mind that we exited our Model ETF positions as of Tuesday, July 19th and are sitting in cash until our new draft reveals the ETFs that we will hold for the next quarter. That draft will be held this Tuesday evening at 7:00pm ET. The above one-week returns are from ALL of last week, not just Monday and Tuesday.
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.
Recent Setups
Here is an update on setups provided two weeks ago:
ISRG:
Last Week's Comment: This turned out to be a great 7% winner off of its 20-day EMA. If you continue to hold, just be aware that ISRG reports its quarterly results on Thursday after the market closes.
UPDATE: You can see the selling that took place after ISRG's earnings report, which by the way, showed a revenue and EPS beat. The "sell on the news" that took place on ISRG is likely setting up a nice opportunity for re-entry in the 320-330 area.
CMG:
Last week's comment: CMG trended a bit lower last week, but there were no significant technical breakdowns. Given its continuing strong relative strength, I believe CMG is going to surprise big time to the upside when it reports on July 26th after the market closes. I'm ok holding this one, but if it fails to hold 2000 price support, a quick drop and potential head fake to the downside could follow.
UPDATE: The AD line is deteriorating, which is worrisome. Holding into earnings is perhaps a bit more of a risk given the weakening AD line. It does, however, remain a very strong relative performer among restaurants ($DJUSRU).
Here are the two setups provided last week:
CHD:
CHD didn't exactly burst to the upside, but it did manage to hang onto its price support zone. A close below 96 would be bothersome, but I expect to see strength from the current level.
LLY:
LLY bounced nearly perfectly off of its 50-day SMA, following the negative divergence that had printed as we headed into July. A breakout above 470 would be bullish.
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.
There remains a lot of risk as we move into the end of July. Historically, the S&P 500 does not perform well this time in July. Despite July monthly options expiring last Friday, we know that the Monday following options expiration presents considerable risk. Furthermore, the currently bearish period that we're in lasts through Monday's close (July 24th).
We're going to head for cover (remain in cash), as it relates to our Model Trades. If I were to take on trades, it makes a lot of sense to stick with defensive stocks.
The Week Ahead
Well, let's start off with that daily negative divergence on the S&P 500:
I showed earlier how the 60-minute negative divergence played out to its 50-hour SMA and nearly reset its hourly PPO. Well, it takes longer to do the same thing when negative divergences are present on daily charts. They're normally resolved over 1-3 weeks, and that tells us to be careful this week.
Also, that equity only put call ratio's ($CPCE) 5-day SMA appeared to bottom and that's coinciding with a potential short-term market top:
We're now trending higher on this 5-day SMA and if stock market weakness persists, we'll likely see this moving average rise further, perhaps much further.
Earnings will continue to accelerate this week and Microsoft (MSFT) and Alphabet (GOOGL) will report their quarterly results on Tuesday after the closing bell. Both charts are showing not-so-great relative strength, especially GOOGL's. Check this out:
MSFT:
While relative strength on MSFT has definitely been under pressure, check out the really POOR relative strength on GOOGL.
GOOGL:
Internet stocks ($DJUSNS) have been exceptionally strong in 2023, but it's been no thanks to GOOGL as this behemoth has been underperforming its peer group for nearly a year. We could see a big disappointment with GOOGL when earnings hit on Tuesday. While I feel more comfortable with MSFT heading into earnings, this one isn't necessarily a slam dunk either.
One bullish signal that I saw last week is the Volatility Index ($VIX), which barely budged higher despite the selling late last week. If the S&P 500 continues to weaken in the early part of the upcoming trading week and the VIX remains in the 13s, that'd be a solid signal to me that any selling will be short-term only.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."