On Friday, April 3, I submitted my article for the ChartWatchers newsletter with the following headline: "Get Ready to be Shocked - To the Upside". As someone who has been involved in the market for many years and who has made his fair share of bad calls, this was one headline I had confidence in and, of course, watched in great delight as the S&P rose from that day from 2460 to its peak of 3233, a nifty gain of 31%.
The confidence I had in that call came from an event held by our Chief Market Strategist, Tom Bowley, where he laid out all of the reasons he felt the market had bottomed and, after studying everything he presented, I too felt the next major move in the market would be to the upside. But even before the current pandemic came to light, something else equally amazing happened, so allow me to share it with you.
Some of you may know that Tom releases his "Top 10 Stock Picks" every quarter. This started with his Model Portfolio in November, 2018, and since then every 90 days he reveals a fresh batch of top 10 stock picks meant to be held for the upcoming 90-day period. In fact, since its inception, the Model portfolio has gone up over 97%, compared to the S&P being higher by 14.61% during the same period of time. But equally impressive was the period between February 19 and May 19, when the stocks in the portfolio rose by 4.6% compared to a loss of 13.68% for the S&P. And - get this - February 19 was literally the day before the market began its historic plunge!
Of course, it's natural to ask why the Model portfolio performed so well in spite all of the chaos and worry surrounding the market. And the primary reason is this - the stocks in the portfolio had all beaten earnings expectations and were showing signs of strength prior to the onset of the pandemic. In other words, the charts were showing that there was a good chance they would move higher. And, to illustrate one great example that would have tested the nerves of anyone holding individual stocks during the deep dive, take a look at the chart below on Chipotle Mexican Grill (CMG).
Notice that the day CMG was added to the Model Portfolio on February 19 it had closed at $933. And where was it 30 days later? $415! That's a haircut by any measure. But then - look what happened from that bottom on March 18 to the close on May 19 - the end of the 90 day period for the Model portfolio. Not only did the stock recover all of the losses - 518 points in all - it tacked on another 87 points - rising 605 points - off of that treacherous March 18 low.
I'm pointing all of this out as a way of showing that even in the throes of the pandemic, quality stocks like CMG - and others in the Model portfolio - held up well. Why? Because they were strong stocks when they were revealed - the kind of stocks traders are attracted to - and proved their worthiness in spite of everything gone wrong.
Tom's next batch of Top 10 Stock Picks will be unveiled on August 19. But, prior to that time, we have 3 important webinars coming up over the next several weeks - including Tom's "Mid Year Market Update" - for members of EarningsBeats.com. To learn how you can save a seat for these 3 timely events, just click here. In the meantime, stay focused on quality names while we all work our way through these challenging times.
At your service,