The Tool You Need to Finally Get an Edge on Wall Street
Editor's note: Investing is about skewing the odds in your favor...
Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, built his Power Gauge system using everything he learned during his 50-plus years on Wall Street. His goal is to "level the playing field" by giving individual investors the tools to find big winners... and steering them away from likely losers.
In today's Masters Series, we're bringing you the second part of Marc's in-depth conversation with Digest editor Corey McLaughlin, updated from May 2021. Read on for several examples of Marc's system at work – including how different clients put his indicators into practice... and how those indicators can give everyday investors unprecedented insight into market activity...
The Tool You Need to Finally Get an Edge on Wall Street
Corey McLaughlin: We talked yesterday about what the Power Gauge is and how you developed it using your Wall Street experience. I want to talk now about how people actually use it, and maybe show a couple of examples. So first, how do most people use your product?
Marc Chaikin: That's an interesting question. People use it in a lot of different ways. We have advisers who filter their firms' buy recommendations through the lens of the Power Gauge. Some clients use it that way. Other clients use it to pick stocks from the bottom up or the top down. My wife, Sandy, works with strong industry groups based on the Power Gauge and then looks at the best stocks in those industry groups. And then some people like to use our screener.
The Power Gauge can be used in a number of ways. But at the end of the day, it points you in the right direction. Not every bullish Power Gauge-rated stock is going to be a winner, but if you eliminate the bears from your radar screen – and right now, a lot of once-popular stocks like Peloton Interactive (PTON) and Beyond Meat (BYND) have bearish Power Gauge ratings and people are still hanging onto these stocks – if all it did was help people avoid one or two disasters in a year, it would pay its freight.
CM: What's a past example of that?
MC: There's a classic example where you are in Baltimore. Everybody owned Under Armour (UAA) in 2015. It was a hot stock. Its leisurewear was big and it was getting into the footwear business.
The Power Gauge rating turned bearish on Under Armour at around $42. And I know this could have helped people, because as I went around to advisers showing them our product, I would show them the stocks that were already bullish and they would ask, "What about Under Armour?" We'd bring up a chart and it had a bearish rating, and they'd say, "Oh my God, I own that myself." These weren't just advisers in Baltimore.
Under Armour eventually dropped over 80%, down below $10. As I said, if all the Power Gauge did for a subscriber was help someone avoid that one stock every year that just destroys your portfolio and causes you to lose sleep every night, it would be worth every penny and more.
CM: If you're talking about something that will help you avoid losses, that's a great thing...
MC: Playing offense is easy, or relatively easy. The stock market is never easy, but there are always strong industry groups and stocks.
On the other hand, I like to say, "Bad things happen to stocks with bearish Power Gauge ratings." Like Peloton... Now, the Power Gauge doesn't know about recalls or treadmills, but it was showing that something wasn't right with Peloton in mid-2021. Why? Well, as you know, there can be leakage in the market. Maybe management knew that it was worse, or were talking to their friends and they were selling stock.
CM: I liked what you've said in previous interviews – and I'm paraphrasing – that with the Power Gauge, you might not be able to say exactly why Wall Street investors are buying or selling a stock... but with your indicators, you can see they are at least buying and selling. You don't know exactly what they know, but you know Wall Street is buying or selling for whatever reason.
MC: Exactly, and then turn that on its head. Nobody knows everything. If you're an investor, you shouldn't expect that you'll know everything.
Sometimes we get the question, "How does the Power Gauge know that inflation is on the rise or interest rates are falling?" And my answer is, the Power Gauge doesn't know, but three of the factors in the model are related to analysts. And so, when they raise their earnings estimates, that's based on the way they're looking at the world and that company in that industry. When they raise their ratings or lower their ratings for a stock, that's an important factor.
"Chaikin Money Flow" basically monitors the "smart money" moving in and out of a stock. And it has done an extraordinary job of that for the last 40 years.
A classic example goes back to the 1980s with Coca-Cola (KO), which was a mundane stock back then. It had consistently bullish Chaikin Money Flow for over nine months. We didn't know what was going on, but based on the fact that the stock was stronger than the market and Chaikin Money Flow was strong, we were telling our institutional clients... "This is a stock you want to be overweight."
It turned out Warren Buffett was accumulating a 10% position and nobody knew. Every day, the stock was closing strong on balance. And that's just a classic example of not needing to know why, just following the breadcrumbs.
CM: I was going through your platform, and like you were saying before, people use it in different ways. I ended up on the "turned bullish this week" section of stocks. First off, a lot of these companies I've never even heard of, which is nice – like Safe Bulkers (SB), which is a Greek shipping company.
Second, I get the sense that this can show you that shipping is hot right now – which wasn't necessarily on my radar. In other words, your indicators could tell people things they might not normally see.
[Editor's note: Please keep in mind this interview's original publication date of May 2021 when reading the next section. While the Safe Bulkers example is outdated now, if you'd bought the stock when Marc's system suggested it, you'd be sitting on generous gains today. This section gives you a good idea of how Marc's system works, but the following numbers and chart are as of May 2021.]
MC: Right. If you look at that chart of SB, the combination of fundamentals and technicals just really stands out. If you go back to November or December 2020 when the Power Gauge first turned bullish, SB was underperforming the market.
We created a heat map to show this. When it's red, it means the stock is underperforming the market. All through November and December into early January 2021, SB had a bullish rating, but the market had yet to confirm. And then when the stock started to move up – when it went to $1.20, $1.30 – it was outperforming the market... and that's when you started to get price acceleration, where Chaikin Money Flow was green for a month and a half.
This is the combination of fundamentals and technicals in real life. And then the company reported two positive earnings surprises, of course, that brought the public off the sidelines. That's not institutions buying when you see that... that's the public getting excited at the wrong time, on a short-term basis.
Also, if you're on the chart, it says SB is in the "marine" group. If you click on that label, it will bring up all the marine stocks and show their ratings. There's one in there, Danaos (DAC), that my wife Sandy actually bought. One of our buy signals triggered and she got into the stock. She bought the stock on March 5, [2021] and paid $40. Then it spiked up on a positive earnings report, and the fact that shipping is hot. [DAC's share price is above $90 today.]
CM: We talked yesterday about your wife's experience with her 401(k) through the financial crisis, and how she was disappointed in her money manager and how that led you to start Chaikin Analytics. How did you convince her to stay in the game, so to speak... to stay invested in the markets?
MC: Because she's bullish on America and understands you've got to invest in the stock market to build your retirement. If people are going to stay in the game, which is what we want them to do, you've got to have some tools like the Power Gauge that can keep you out of trouble... because the biggest impediment to success is losing confidence in the markets.
CM: Well said. We're just about out of time. Anything else you want to add?
MC: Just that I think we're in a stock picker's market... and in a stock picker's market, there is nothing better than the Power Gauge to separate the wheat from the chaff. It has consistently done that over a 10-year period, pointing people in the right direction.
Investing is all about putting the odds in your favor and managing risk. If you point yourself toward the big winners, you're going to skew the odds in your favor. And if you can avoid a couple of losers, you're just going to dramatically improve your bottom line.
CM: Marc, I'll let you go now... I can't tell you how thankful I am to you for your time and the opportunity to soak up your wisdom.
MC: Thanks, Corey. This has been great. At my age, I'm doing this to help people. And if we can get the message out, I really think we're going to do a lot of good for Stansberry Research subscribers.
Editor's note: Marc says his Power Gauge tool is the key to helping "Main Street" investors come out on top of today's disorienting market. And if you're still looking for greater clarity about where stocks are headed next, don't miss his explosive new warning...
According to Marc, a huge shift is coming to the U.S. market – and one specific group of stocks is headed for destruction, while another is set to soar. He explained it all in a brand-new presentation – including exactly what's going to happen to the market for the rest of 2022, based on more than a century's worth of proprietary data. Click here for the full story.