Editor's note: It's time to level the playing field... With inflation and geopolitical conflict weighing on stocks, many investors are unsure about where to put their money to work today. But according to Vic Lederman – editorial director of our corporate affiliate Chaikin Analytics – you can uncover winners if you have the right tools... In today's Masters Series, adapted from the December 2 and December 3 issues of the Chaikin PowerFeed e-letter, Vic details how the Power Gauge can help guide your investment decisions in this uncertain market...
How I Avoid Buying Blindly By Vic Lederman, editorial director, Chaikin Analytics Despite the massive gains we've already seen this year... the market is still soaring. In the past month alone, the S&P 500 Index climbed another 6%. That's a massive jump for the broad market. Some sectors did even better over the same time frame... a lot better, in fact. For example, the Consumer Discretionary Select Sector SPDR Fund (XLY) soared about 11%. And the Financial Select Sector SPDR Fund (XLF) posted a roughly 10% gain. Folks, that's one month of gains. Not a half year, or a full year... just one month. And we're not talking about some hole-in-the-wall segments of the market, either. These are among the top-level sectors as defined by S&P. There are 11 top-level sectors. And the best of them have been soaring. But that doesn't mean all the sectors posted huge gains. So today, let's take a closer look at two that particularly struggled recently... I'm talking about the Materials Select Sector SPDR Fund (XLB) and the Health Care Select Sector SPDR Fund (XLV). As their names imply, these exchange-traded funds ("ETFs") track the materials and health care sectors, respectively. Over the past month, XLB is up less than 2%. And XLV is down a bit less than 1%. Those numbers might seem small at first. But remember that the broad market and other top-level sectors soared over the same time frame. In our system, we use XLY to measure the consumer-discretionary sector. And right now, it earns a "bullish" rating in the Power Gauge. But this strong rating doesn't mean every holding in the fund is rated so highly... In fact, the majority of the stocks in XLY currently earn a "neutral" rating from the Power Gauge. And five stocks earn a "bearish" or "very bearish" rating. XLY is up about 32% this year. That's a solid return. But some of the stocks in the fund are holding it back. Apparel giant Nike (NKE) has held a "bearish" rating in the Power Gauge for most of this year. And the stock has tumbled about 28% so far in 2024. That's a massive loss. And it's one that could have easily been avoided with the help of the Power Gauge. It's a reminder that even in a strong market, blindly buying isn't good enough. Put simply, overallocation to the wrong sectors at the wrong time will lead to lower returns. Fortunately, the Power Gauge makes spotting these "bearish" runs easy. Just consider XLV... Again, this ETF tracks the health care sector. The Power Gauge rates each of the individual stocks in XLV. And it also gives the ETF an overall rating. Take a look at the chart below... 
This is a six-month chart of XLV. And it shows the Power Gauge's ratings in the bottom panel. As you can see, our system turned "bearish" on XLV back in mid-October. That means the Power Gauge told us in advance that it saw rough waters ahead for this major market sector. And as we now know, that's exactly what played out. Looking closer, it's no surprise that this happened... XLV holds 61 stocks rated by the Power Gauge. And when we look at their individual ratings, it's obvious that the sector is struggling today. Only three stocks in XLV currently earn a "bullish" or "very bullish" rating right now. Meanwhile, 26 of the fund's holdings fall into the "bearish" or "very bearish" buckets. And like you'd expect, XLV currently earns a "very bearish" rating from the Power Gauge. Does this mean the end of health care stocks? Absolutely not. The market churns. And over the course of a year, some sectors will outperform others. The important part is making sure you're avoiding the weakest parts of the market. And when possible... you want to align yourself with the strongest parts, too. This year, consumer spending is still strong. But that doesn't mean every stock involved is an automatic winner. You still need a way to filter that down to the winning stocks. I use the Power Gauge for that. The Power Gauge isn't a crystal ball. But it helps point us in the right direction. Right now, it's telling us that health care stocks and materials stocks are struggling. So I know to focus my attention elsewhere. And I recommend you do the same. Good investing, Vic Lederman
Editor's note: The Power Gauge spotted 44 of the top 50 stocks of 2024 before they exploded higher. And it could have pointed you to 45 of the top 50 stocks last year as well. Now, it's flashing once again ahead of a market shift that could determine where stocks go in 2025... So Chaikin Analytics founder Marc Chaikin is stepping forward for an online presentation on Tuesday, December 13, to reveal the upcoming road map for stocks – including information about which stocks to avoid. Catch up on the full details here... | 
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