EB Weekly Portfolio Report - Sunday, August 6, 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, August 7: None

Tuesday, August 8: DUOL, TDG

Wednesday, August 9: None

Thursday, August 10: None

Friday, August 11: 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: -2.27%
• Model Portfolio: -4.24%
• Aggressive Portfolio: -3.63%
• Income Portfolio: -1.49%
• Model ETF Portfolio: -2.83%

Weekly Summary

Benchmark S&P 500:

The S&P 500 ($SPX, -2.27%) finally wilted under the pressure of overbought conditions and a negative divergence. Technology (XLK, -3.81%) and communication services (XLC, -2.50%), two aggressive sectors, were among the laggards last week, weighing heavily on the benchmark index. However, utilities (XLU, -4.55%) had a very difficult week as income investors likely headed for the utilities exit and parked their money in treasuries. The 10-year treasury yield ($TNX) is viewed as the much safer option and it rose 9 basis points to close the week at 4.06%. It was much higher prior to the July nonfarm payrolls report, which showed a lower jobs number than expected. That cooled the TNX and we saw a major reversal. I would expect to see even lower yields ahead after the bearish engulfing candle that printed on Friday:

You can see the big reversal, but it's also important to note that 4.10%, which was solid yield resistance previously, did not hold as yield support. In my opinion, that opens the door to lower yields unless we get a quick reversal back to the upside early this week.

Model Portfolio:

The Model Portfolio fell 4.24% 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 3.63% 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 dropped 1.49% 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 dropped 2.83% 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 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 the two setups provided in last week's Model Trade Setups:

ISRG:

I've discussed recently that ISRG has solid support near 320. Last week's selling brought us down perfectly to that level. I like entry here at the current price and again at 320. I'd keep a closing stop below 315 and look for a price target of 350-360 to challenge the recent high.

UPDATE: ISRG failed to hold support in the 315-320 area, so I'd be out of it. The PPO is now well below zero and we're seeing the 20-day EMA drop below the 50-day SMA. I now see the current trading range as gap support in the 290s and resistance at the declining 20-day EMA. That's the range that I'd trade until ISRG shows enough strength to clear its 20-day EMA.

SYK:

I like entry on SYK at the current price as gap support is being tested. A conservative approach would be a second entry near 270 with a closing stop beneath 269. Ultimately, my target here would be back at the recent price high near 305.

UPDATE:

Obviously, the conservative approach would have worked better as SYK did trade below gap support and neared 270 (low was 271.86). It bounced back with earnings, but still must negotiate the declining 20-day EMA, which broke below the 50-day SMA.

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.

We are now trading in "nowheresville" historically. August and September are not typically the two months where we see big moves higher in the stock market. And if we break down the year into the four calendar quarters, and then break down the calendar quarters in half, I can tell you that the August 15th to September 30th period is the absolute worst half-calendar quarter since 1950. Have we had big moves to the upside this time of year? Absolutely. The months of August and September have BOTH produced positive monthly returns within the same year periodically. Here's the list of calendar years when it's happened (on the S&P 500):

• 1950
• 1958:
• 1965
• 1968
• 1970
• 1980
• 1982
• 1983
• 1996
• 2004
• 2006
• 2007
• 2009
• 2012
• 2017
• 2018

It's happened 16 times over the course of the last 73 years. Here are the years when we've seen BOTH August and September produce negative returns since 1950:

• 1952
• 1956
• 1957
• 1959
• 1966
• 1974
• 1975
• 1977
• 1981
• 1985
• 1990
• 1999
• 2001
• 2011
• 2015
• 2016
• 2022

It's happened 17 times in the last 73 years. So the odds of the S&P 500 moving higher in BOTH August and September are roughly the same as moving lower in BOTH August and September. I'm providing this so that you don't grow OVERLY bearish. While the returns in August and September are typically below average, it's not a slam dunk that we'll move lower between now and September 30th, especially since we're in the midst of what I believe is a secular bull market advance. I'll continue to look for solid reward-to-risk trade setups, but simply understand that choppy, whipsaw action is the norm for late summer trading.

Here are four setups where I like the reward to risk this week and all are from our portfolios and they're each in different sectors:

RMBS:

I like RMBS in the 51-53 area with a closing stop beneath 50. Should semiconductors ($DJUSSC) begin to strengthen, RMBS could begin pushing higher towards its recent price high near 67.50.

SKX:

After clearing overhead resistance on very strong volume that accompanied earnings, SKX has pulled back to test its rising 20-day EMA. I love it as this level with gap support servicing as a closing stop. SKX is arguably the best-performing footwear ($DJUSFT) stock.

ZBH:

ZBH appears to be in a VERY wide trading range from 125-147. With it currently trading at 126, the reward to risk is rather obvious. 120-121 is the next support level and perhaps even more critical. Consider a long trade at current price and again if the 121 support level is approached. Then I'd use 120 as my closing stop. This latter strategy would be more conservative and provide a bit more room to the downside.

GWW:

Both trendline and price support fall in the 700-705 range and the AD line remains very strong on GWW. I like entry at the current price and a very tight closing stop beneath 700. I'd want to see it turn higher from here.

The Week Ahead

While I believe we remain in a secular bull market, which tells us that another advance could trigger any time, there do remain negative divergences that could continue to play out this week. As I look at the S&P 500 chart, I see a couple of key price/moving average support levels to watch. Moving down to test either or both of these levels, while short-term concerning, would not change my opinion of the long-term chart in any way whatsoever:

If you believe that we're going higher and that we've resumed the secular bull market that began in April 2013 from the depths of the recent cyclical bear market, then the most likely scenario would be a 50-day SMA support test, along with an RSI test at or near 40.

A longer-term weekly chart points us to the "possibility" of a trip closer to 4300 price support. Check this out:

The weekly PPO is a thing of beauty, which normally means ANY 20-day EMA test is a GREAT opporunity to go long. I'd only expect 1-2% of further downside, if we even get that, but just remember that if things really accelerate to the downside, the lower 4300s would represent a time to get very aggressive - all in my opinion, of course.

This week, the big news is going to be Wednesday's July CPI report and Thursday's July PPI report. Both will be released at 8:30am ET, and they carry the potential for significant market volatility. I believe this will be the bears' best chance to move the S&P 500 down to 4400, possibly even well into the 4300s. But if those inflation reports are tame, I just don't see enough sellers to reach that 4300-4400 area. Maybe I'm wrong.

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."