This 'Magic Key' Still Works Today
Editor's note: Increase your odds of winning...
Amid tariffs, inflation, and geopolitical turmoil, many investors are unsure about what to do with their money.
But according to Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – you can navigate this market turbulence safely if you understand one pattern that most investors overlook.
In today's Masters Series, adapted from the July 31 and August 15 issues of the Chaikin PowerFeed daily e-letter, Marc reveals the "magic key" that can help you analyze this trend...
This 'Magic Key' Still Works Today
By Marc Chaikin, founder, Chaikin Analytics
In the 1980s, I joined Drexel Burnham Lambert...
The investment bank was famous for its "junk bond" department. But it also had a quantitative-analysis department.
That's where I met George...
George was a "quant" with something truly special at the time – a quantitative database.
Now, longtime Chaikin PowerFeed readers know I learned about technical analysis all the way back in the late 1960s. That happened at Shearson, Hammill – the Wall Street firm where I started my decadeslong career.
So with my love for the technicals, you better believe I made a point to seek out George when I started at Drexel Burnham Lambert. And it paid off big time...
George mentored me in quantitative analysis. But that wasn't all...
He also gave me access to his database.
It was the "magic key."
And as I'll explain today, his original research played a huge role in the Power Gauge's development. The two factors he specialized in are now core components of the system...
At Drexel Burnham Lambert, I was the only retail stockbroker with access to George's magic key.
Suddenly, I could combine my "relative strength" research with George's database for "earnings surprise" and "earnings estimate revision" research. And there was more data, too. George also had highly valuable information like "insider trading" activity.
Amazingly, what George taught me back in the 1980s still works today...
Analysts' estimate revisions are the single biggest short-term driver of stock-price movements. That's still true even with high-frequency trading and all the information available to folks on the Internet these days.
In short, a virtuous circle exists for companies that exceed Wall Street estimates.
It works in the other direction, too. Disappointing earnings reports – and importantly, how analysts react to them – drive downward price action in the markets as well.
So I'm not exaggerating when I say that George gave me the magic key.
I was able to take my research to the next level with that key. It gave me the confidence to go off and start an institutional brokerage firm in 1989 with a partner from Philadelphia.
We had institutional clients like famous hedge-fund manager Steve Cohen. He used our research and analytics terminal to successfully build his multibillion-dollar hedge fund.
With George's magic key, I went from burgeoning technical analyst to full-on quant. And I learned that multibillion-dollar hedge-fund managers would pay big money for my tools.
Now, after leaving retirement about a decade ago, my focus in life is sharing those tools with individual investors. And the summation of those tools is the Power Gauge.
In fact, the two factors that George specialized in – earnings surprise and earnings estimate revision – are core components of the Power Gauge today. At any time, investors can find out what these factors show for any of the more than 5,000 stocks in the system.
George shared the magic key with me all the way back in the 1980s.
It doesn't seem so long ago. But such is life.
Importantly, this magic key led me to build a powerhouse quantitative-analysis firm. Some of Wall Street's most influential fund managers have relied on this data over the years.
And as crazy as it might seem, George's magic key still works today...
At Chaikin Analytics, we're using the Power Gauge to not only find opportunities... but also determine when to take profits off the table.
For example, in June, subscribers to my Power Gauge Investor newsletter booked a 39% gain in military supplier Kratos Defense & Security Solutions (KTOS) in roughly three months.
And last month, Power Gauge Investor subscribers also took profits on electrical-connector maker Amphenol (APH). This position worked out wonderfully for us – generating a 65% gain in just about a year.
The point is simple...
Sure, we've been in a challenging environment.
But that doesn't mean the market has frozen. Don't forget that incredible gains are still possible even when the markets are uncertain...
Stocks are still trading. And some of them are making big moves.
The S&P 500 Index recently hit a new all-time high. And since its closing low around 4,983 on April 8, the index is up roughly 28%.
It's a staggering turnaround in a few short months.
As regular readers know, we measure the broad market in the Power Gauge with the SPDR S&P 500 Fund (SPY). And right now, SPY earns a "very bullish" rating.
That's great news. It means more opportunities to buy strong stocks poised for more upside ahead.
As I said, the S&P 500 isn't far from new highs. And when it comes to individual stocks in SPY, the Power Gauge sees lots of "bullish" opportunities ...
Right now, this index-tracking fund holds 148 companies with "bullish" or "very bullish" ratings. That's great.
But at the same time, SPY also holds 106 stocks with "bearish" or "very bearish" ratings. So there are still plenty of stocks that look poised for downside ahead.
That means our job is to find what's working... and avoid what's not.
That's true in a strong market. But it's also true in an uncertain market like we've been in recently.
So, if you've been sitting on the sidelines... you're missing out on opportunities.
Of course, all this doesn't mean that volatility is over. You can't just throw caution to the wind and blindly pile into stocks.
But again, the market has soared off its April bottom. It's up about 28% since then. And we've recently seen some storm clouds of uncertainty part.
If you're invested, good. If you're not... you risk this market passing you by.
Good investing,
Marc Chaikin
Editor's note: With volatility filling up the markets in 2025, Marc is doing something unprecedented to help investors...
He's inviting you to submit any questions you have about the stock market for him to address during a live presentation. On Tuesday, Marc is going on camera to answer as many of your questions as possible to help you prepare for a major turning point in the markets.