The Power Gauge’s Take on This Market Plunge

Investing isn’t getting any easier, folks.

If you’re reading this essay, you likely know all about the broad market’s struggles…

The S&P 500 Index is down roughly 24% so far this year. That’s brutal.

And the thing is… what’s happening “in between” is adding extra challenges for investors.

You see, the S&P 500 bottomed at just less than 3,670 in mid-June. That was a little more than three months ago. And after that happened, a massive “bear market rally” unfolded…

The S&P 500 soared 17% off its low. It closed at more than 4,300 in mid-August.

Importantly, it took two whole months for that bear market rally to peak…

That was two months of building optimism. And it was two months for individual investors to get too comfortable.

You know what happened next…

The S&P 500 is down around 15% from the peak of that bear market rally. It just made another low for 2022 yesterday. And pessimism is the reigning emotion right now.

For the contrarians among us, this might look like an opportunity. After all, how often are you able to buy the broad market at roughly 24% below its high?

Well, this is exactly why I created the Power Gauge…

This one-of-a-kind system is the barrier between me and my emotions. And whether I like it or not, it provides me with the unvarnished truth.

So today, let’s take a closer look at that truth. And let’s use it to help us parse what to do next…

Now, regular Chaikin PowerFeed readers know I recently wrote about newly “bullish” sectors in the Power Gauge. But the market’s latest drop caused the system to flash caution signs…

Several market sectors are currently “neutral+” as the decline rages on.

That means the Power Gauge wants to assign “bullish” ratings to these sectors. But since they’ve fallen below their long-term trend lines, it’s telling us to be careful for now.

Do I believe that these sectors will turn “bullish” again in the near future? Yes, absolutely.

But today, I want to call your attention to the state of the broad market…

No matter how you feel about it, the S&P 500 is the broad market benchmark that most investors use.

It’s also how most investors get the majority of their exposure to stocks. After all, just about every large-cap exchange-traded fund these days is an analog of the S&P 500.

So with that in mind… what does the Power Gauge think of the S&P 500 today?

There’s no getting around the reality of this situation. It’s rough…

As of yesterday’s close, only 12 stocks in the S&P 500 received “bullish” or better ratings.

That means the Power Gauge sees big outperformance potential in the near term with only 12 out of roughly 500 stocks. That’s only about 2%. And that’s not all we know…

The Power Gauge is also “bearish” or worse on 117 stocks in the S&P 500 today. And the rest are stuck in “neutral” territory.

Now, I’m thankful to have that list of 12 “bullish” opportunities. But when it comes to the broad market, we need to face an uncomfortable truth right now…

This is simply not the time to make a big contrarian bet.

At least in the short term, the market could easily continue falling from here.

Only a handful of stocks are pushing against this decline. And no historical truism tells us that a drop of roughly 25% is a guaranteed bottom. Things can always get worse.

So for now, stay patient. Seek out the opportunities that do exist. And make sure you’re using tools that keep your emotions in check…

For me, that’s the Power Gauge.

Good investing,

Marc Chaikin

P.S. At its core, the Power Gauge is a critical tool for figuring out when to get in and out of any given stock. And with all of this year’s volatility, timing is more important than ever.

But the thing is… with more tools at your side, you’ll only strengthen your odds of success.

That’s a big reason why I recently teamed up with Joel Litman, the head of our corporate affiliate Altimetry. Using his firm’s proprietary approach to accounting, the Altimeter finds the stocks with the greatest chances of soaring – no matter what the broad market does.

Joel and I explained everything you need to know about the current market in a special online event last week. But you’re not too late… Watch a replay of the event right here.

Scroll to Top