EB Weekly Portfolio Report - Sunday, August 13, 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 14: NVTS
Tuesday, August 15: None
Wednesday, August 16: None
Thursday, August 17: None
Friday, August 18: 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: -0.31%
- Model Portfolio: -2.04%
- Aggressive Portfolio: -3.47%
- Income Portfolio: -0.30%
- Model ETF Portfolio: -1.49%
Weekly Summary
Benchmark S&P 500:
The S&P 500 ($SPX, -0.31%) didn't give up much ground, though the NASDAQ ($COMPQ, -1.90%) did see a bit more selling last week. And since we topped in mid-July, here are how each of the 11 sectors have performed:
Technology (XLK, -7.41%) has singlehandedly been responsible for the recent selloff. But it was also the group that showed so much strength during the first 6 1/2 months of the year:
If we look at the chart for technology, you'll see that we were extremely overbought and had a negative divergence in play, which, in my opinion, has now been resolved in the short-term:
Negative divergences typically "play out" to 50 day SMA tests and/or PPO centerline tests, or "resets". The pink arrows show that both have now taken place. I'm now watching the XLK's relative support line with is roughly 0.0368. I suspect that technology is getting close to a reversal, but on the price chart, I've provided three different price support levels to watch. We're currently resting on the first support level near 367.
After a lengthy advance like XLK experienced during the first half of 2023, it's not unusual to fall back into some sort of bullish continuation pattern. At this point, knowing what I know about the August/September seasonal weakness, I'm expecting to see perhaps a 2-month period of sideways consolidation. Or maybe a bullish ascending triangle (equal highs and higher lows) could develop. We could possibly see a bullish cup with handle form.
One thing is nearly certain. Don't expect significant leadership from the NASDAQ again until technology overcomes its current period of selling/consolidation.
Model Portfolio:
The Model Portfolio fell 2.04% 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 3.47% 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 dropped 0.30% last week, essentially matching 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 1.49% 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 four setups provided in last week's Model Trade Setups:
RMBS:
Original comments: I like RMBS in the 51-53 area with a closing stop beneath 50. Should semiconductors ($DJUSSC) begin to strengthen, RMBS could begin pushing higher towards its recent price high near 67.50.
UPDATE: I do like RMBS, but I suppose it depends on how you view this chart. RMBS enjoyed a huge run higher leading up to earnings. It's clearly been a "sell on the news" since, however, with the large gap down after earnings were released. It's weak vs. its semiconductor peers ($DJUSSC), but its AD line is strengthening. Still, losing key price support that dates back 4-5 months ago is a red flag to me.
SKX:
Original comments: 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.
UPDATE: SKX lost its 20-day EMA on Friday after holding up throughout much of the week. Gap support just above 51 remains the key support level, in my view.
ZBH:
Original comments: 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.
UPDATE: ZBH lost support at the 125 level and is working its way towards 121 support. The AD line continues to take a hit, so in addition to price support holding at 121, I'd like to see signs that Wall Street is using this weakness to accumulate in the afternoons. Without improvement in the AD line, I'd definitely keep that 120 closing stop here.
GWW:
Original comments: 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.
UPDATE: Not much has changed on GWW. It traded mostly sideways and continued to hold onto both trendline and price support.
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.
Here are 6 setups from our August Seasonality Report. All 6 stocks have started the first two weeks of August on a sour note, but they're all at or near key support. I'm looking for seasonal trends and technical buy levels to generate nice profits in the week ahead (and possibly through the end of August):
TSLA:
Relative strength and the AD line are strong. And recent selling has been on below-average volume.
AMD:
The AD line and relative strength on AMD are not holding up well, so if price support is lost, it would be much more difficult for me to hold.
NVDA:
After earnings, NVDA rolled up to 406, consolidated a bit, and then busted through this resistance. It now becomes support on NVDA's move back to the downside. If 406 support doesn't hold, I wouldn't be surprised to see more NASDAQ weakness with NVDA possibly moving back to 380-385.
KEYS:
KEYS chart is problematic enough that I'd be out on any close below 155.
IT:
I like the AD breakout here and all the "tails" going down to 334-336, while hanging onto its key support range from 333-337. A close beneath 333, however, and all bets are off.
UAL:
Volume has been light on the selling and UAL's AD line keeps moving higher. I suspect UAL is very likely to move back to the upside, but will it hold 51.96 price support prior to this advance?
The 6 setups this week are a bit different than those provided in the past. Seasonality was given significant weighting in the decision to provide these stocks as Model Trade Setups. If technical support levels fail, I'd exit, however, despite the propensity for these stocks to perform well in August.
The Week Ahead
Historically, the upcoming week has been one of the best in August since 1950 (on the S&P 500). But we can't ignore the technical and sentiment warning signs that have flashed the past few weeks and the subsequent technical breakdowns. While I'm not sure we're going to see extreme leadership from the NASDAQ 100 ($NDX) like we did during much of 2023, I do expect the historically weak period from July 17th through September 26th to continue to serve as a period of consolidation/selling, before another solid advance in Q4 - possibly to all-time highs. I'd like to see strength resume sooner, but let's just keep that bar lowered for now.
Earnings are slowing down and economic reports will not be as significant as the jobs and inflation reports we've seen over the past week to ten days. Inflation at the consumer level continues to moderate and that's a bullish signal for equities. Here's a 5-year chart of Core CPI ($$CCPI), showing both the monthly and annual rate of change (ROC):
The Federal Reserve has stated on many occasions that they want to see that inflation is completely under control. I highlight above that the 1-month ROC has been below 0.20% for a second consecutive month (blue circle) and that the annual ROC is steadily declining. I also circled the 1-month ROC, pre-COVID pandemic, and you can see that it stayed primarily in the 0.1% to 0.3% range. We're back there again. I see no reason for another rate hike when the Fed next meets on September 19th and 20th. But we will see one more cycle of inflation reports between now and then. Once Wall Street is convinced the Fed's work vs. inflation is done, there's your catalyst to the next significant advance in U.S. equities.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."