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Is Chaikin Analytics really going to help you invest better and trade stocks better?
What does it really offer?
How useful are Chaikin Analytics stock tools such as Power Gauge Ratings?
Can you really improve your investment results by following Power Gauge Ratings?
Are there any better alternatives?
Marc Chaikin, Founder Of Chaikin Analytics
Marc Chaikin graduated from Brown University with a degree in political science.
Later on, he worked on Wall Street for some years before starting his own company Chaikin Analytics.
Chaikin Analytics is a company that offers stock research tools as well as investment newsletters.
The main selling point of Chaikin Analytics is its Chaikin Power Gauge Rating which is used to predict where the stock is headed in the next 3 to 6 months.
Below is a list of the products offered by Chaikin Analytics:
- PowerPulse System: $120/year (i.e. Power Gauge Rating on individual stocks)
- PowerGauge Report: $199/year (i.e. monthly newsletters with a new stock recommendation based on Power Gauge Rating +PowerPulse System)
- Chaikin Analytics System: $3,195/year (i.e. research platform with Power Gauge Rating, stock screener, portfolio health check, stock & ETF discovery, OptionPlay, etc.)
- PowerGauge Investor: $5,000/year (i.e. monthly newsletters with a new small-cap stock recommendation based on Power Gauge Rating + Chaikin Analytics System + special reports)
- Chaikin PowerTrader: $5,000/year (i.e. PowerTrader options trade recommendations based on Power Gauge Rating + Chaikin Analytics System + special reports)
- Chaikin PowerTactics: $5,000/year (i.e. monthly short-term buy recommendations (hold less than 12 months) based on a “Neutral” Power Gauge Rating + Chaikin Analytics System + special reports)
So, it seems that the entire suite of products was created around the Power Gauge Rating.
What is Power Gauge Rating and how is it calculated?
How useful and accurate is the Power Gauge Rating?
Let’s find out.
Chaikin Power Gauge Rating
So, what are Power Gauge Ratings?
How do you use them?
Are they reliable and accurate?
Power Gauge ratings are calculated by looking at four components (i.e. Financials, Earnings, Technical, & Experts) for each stock.
Each component is comprised of five factors.
Here’s the breakdown of the 20 factors, grouped into 4 components, that make up the Chaikin Power Gauge stock rating model:
- Financials: LT Debt to Equity, Price to Book, Return on Equity, Price to Sales, and Free Cash Flow
- Earnings: Earnings Growth, Earnings Surprise, Earnings Trend, Projected P/E, and Earnings Consistency
- Technical: Relative Strength vs. market, Chaikin Money Flow, Price Strength, Price Trend ROC, and Volume Trend
- Experts: Analysts’ Earnings Estimates Trend, Short Interest, Insider Activity, Analyst Rating Trend, and Industry Relative Trend
By going through the 20 factors, you can see it combines both fundamental and technical analysis.
For example, Chaikin Money Flow is a technical indicator.
Chaikin Money Flow is a proxy for the magnitude of institutional buying or selling over a 21-day period, looking back over 6 months to determine the persistence of accumulation or distribution.
If the big institutions are buying more and more, then it thinks that is a bullish sign for the stock.
Here’s another factor – Analysts’ Earnings Estimate Revision.
It tells you whether analysts have raised or lowered their earnings estimates for a given company over the past thirteen weeks.
If analysts are raising estimates on the company, that’s a bullish sign.
As you can see, this Chaikin Rating model is designed to give you an indication of where a stock is headed over the next 1-6 months.
In other words, it’s used for short-term or intermediate-term trading.
Now, let’s see exactly how they arrive at the Power Gauge Rating for each stock.
For each component of a stock, a power gauge rating is assigned after evaluating all the five factors within that component using its own methodology.
Take Earnings for example.
After evaluating all five factors, a power gauge rating is assigned.
There are five different power gauge ratings for a component:
- Very Bullish
- Very Bearish
Earlier on, we mentioned that the Power Gauge Rating takes into account four components (i.e. Financials, Earnings, Technical, and Experts) for each stock.
Combining the components using a proprietary algorithm, it derives the stock’s Power Gauge Rating.
There are also five different power gauge ratings for a stock:
- Very Bullish
- Very Bearish
Basically, it’s very simple.
If the Power Gauge Rating for the stock is Very Bullish, it means that they think there is a very good probability that the stock would go up in the next 1 to 6 months.
Conversely, if the Power Gauge Rating for the stock is Very Bearish, it means that they think there is a very good probability that the stock would go down in the next 1 to 6 months.
Now, let’s look at the real-world performance of buying stocks based on power gauge ratings from 2nd Jan 2011 to 31st Dec 2019.
As you can see, the power gauge rating performance is very similar to the Russell 3000 ETF.
What that means is that you would achieve the same result by just buying Russell 3000 ETF from 2011 to 2019.
On top of that, you wouldn’t have to waste time buying and selling so many different stocks every single month for 9 years.
Now, let’s take a look at another set of data.
Below is the real-world performance of buying stocks based on power gauge ratings from 2nd Jan 2011 to 31st Dec 2020.
The results for the years 2021 and 2022 are not included.
As you can see, Power Gauge Rating recommendations only overperformed Russell 3000 ETF after including the data for the year 2020.
The year 2020 is a unique year where you saw the market crash and then stage a V-shaped recovery shortly after.
Basically, almost anyone who bought stocks after the crash in March would have made money, regardless of what stocks they bought.
So, it is no surprise that the Bullish Power Gauge ratings have done well.
If you take a closer look, you will see that EVEN the Bearish Power Gauge ratings have outperformed Russell 3000 ETF after including the data for the year 2020.
What does that mean?
Even for the stocks with Very Bearish Power Gauge ratings, their share prices had gone up significantly in 2020.
Personally, I prefer Seeking Alpha Quant Ratings which are more robust and advanced.
Is Chaikin Analytics System Really Useful?
Basically, the Chaikin Analytics System (i.e. Power Gauge System) gives you the following tools:
- Power Gauge Rating on stocks & ETFs
- Stock & ETF screener
- Portfolio health check
- Chaikin stock discovery
- Email & On Screen alerts
- ETF comparison
Below is the Chaikin Analytics dashboard.
If you have a list of stocks or ETFs that you are interested in, you can easily check their Power Gauge Rating.
If you are looking for stocks or ETFs to buy, you can use the screener or “Chaikin HotLists” to find potential investment ideas.
Chaikin HotLists are basically preset screeners.
For example, “Classic Bulls” include stocks that have met the following criteria:
- Very/Bullish Rating with persistent green
- Above a rising long-term trend
- Strong Chaikin Money Flow (persistent green)
- Strong Relative Strength
- Strong Industry Group
Industry rating is determined based on the aggregate Power Gauge Ratings of stocks in the same Industry Group.
All in all, most (if not all) of the preset screeners are based on a varied combination of filters that always include Power Gauge Ratings.
You can also use its screener to find stock or ETF ideas that meet your own criteria.
But, as you can see below, the screener is pretty basic with a limited number of filters that you can choose from.
If you are looking for a good fundamental stock and ETF screener, I highly recommend Stock Rover.
As for Portfolio Health Check, it basically gives you an overview of the current Power Gauge Ratings of all the stocks in your portfolio as well as whether or not your stocks are currently in a strong Industry Group.
If there are any upcoming earnings, earnings surprises, or analysts’ earnings revisions, you can find out as well.
This is nothing special.
In fact, you can find other better portfolio analytics and management tools (it is free by the way).
If you are keen to get a good portfolio analytics and management tool, I highly recommend Stock Rover.
Perhaps, the only unique thing about Chaikin Analytics is the “OptionsPlay” function.
What it does is that it generates options trading strategies for you with trade signals and OptionsPlay Score.
OptionsPlay Score is a proprietary indicator that tells you the risk-reward ratio of your options trade.
It ranges from 0-250.
A score below 100 means you are taking too much risk.
Rarely, the score goes above 150.
Adjusting the trading range could change the OptionsPlay Score.
If you trade options on stocks, you might find this function useful.
Otherwise, you are paying a lot of money for a function that you don’t use.
Is it worth paying thousands of dollars for the Chaikin Analytics System?
Personally, I think it’s overpriced, and there are other better (yet much cheaper) alternatives.
Alternatives To Chaikin Analytics
Here is one of the stock research platforms that I personally use to do my own research and analysis.
Seeking Alpha Premium has all the financial information and data (i.e. US stocks as well as international stocks) to help you research and analyze stocks.
Also, its proprietary Author Rating and Quant Rating can help you filter through thousands of stocks easily and also help you identify the latest investment opportunity.
For each stock, you can find the latest Seeking Alpha Premium ratings on the stock:
- SA Author Ratings ‒ ranging from Strong Buy to Strong Sell
- Wall Street Ratings – consensus and price targets on the stock by Wall Street Analysts
- Quant Ratings ‒ based on over 100 metrics, updated daily
The most interesting of all is its proprietary Quant rating.
It was developed by CressCap, quantitative analytics and data platform that was acquired by Seeking Alpha.
So, what exactly is Quant Rating, and also how does it really work?
Quant rating is derived by comparing over 100 metrics for the stock to the same metrics for the other stocks in its sector.
These metrics include the company’s financial data, stock price performance, and analysts’ estimates of future revenue and earnings.
There are five types of Quant ratings:
- Strong Sell (i.e. a score of 1)
- Sell (i.e. a score of 2)
- Hold (i.e. a score of 3)
- Buy (i.e. a score of 4)
- Strong Buy (i.e. a score of 5)
The advantage of this method is that you can use Quant Rating to find the best performer of any particular industry or sector.
So, how exactly is Quant Rating calculated?
Quant Rating is derived after taking into account the following five “Factor Grades”:
- EPS Revisions
The Factor Grade is determined by comparing the relevant metrics for the factor for the stock to those for the other stocks in the same sector.
For example, to determine the grade for the “Growth” factor, metrics such as past sales growth, projected earnings growth, and stock price performance for the stock will be compared to the same metrics for the other stocks in the same sector.
Then, each factor is assigned a grade, from A+ to F.
Grade A+ means that the stock has the highest growth potential compared to its peers in the same sector.
On the other hand, a grade of F means that the stock has the lowest growth potential compared to its peers in the same sector.
So, how do you use Seeking Alpha’s Factor Grades?
The value, growth, and profitability grades give you a snapshot of the stock’s fundamentals, while the momentum and EPS revisions grades tell you if the stock is gaining momentum.
So, if you are looking for value stocks, you just filter out all the stocks with a “Value” Grade of A or A+.
After that, you further research and analyze these value stocks one by one.
The advantage of Factor Grade is that you get a very quick idea of what type of stock it is. (e.g. a value stock? a growth stock? momentum stock?)
Here’s one of the best ways to make use of Seeking Alpha ratings.
Every day, Seeking Alpha publishes a list of stocks that earn top ratings from Seeking Alpha authors, Wall Street analysts, and its proprietary Quant System.
Personally, I think that just this list of Top-Rated Stocks is like a gold mine that could potentially help you increase your investment returns significantly.
Below is the performance comparison between Seeking Alpha’s Strong Buy Recommendations vs S&P 500.
As you can see, it outperformed S&P 500 by a large margin.
Now, how much does Seeking Alpha Premium cost?
- Basic: Free
- Seeking Alpha Premium:
- Seeking Alpha Pro: $2,400 per year (mostly for hedge fund managers)
So, is it worth paying for Seeking Alpha Premium?
$167/year works out to be about $14.50/month (i.e. $0.48/day).
A cup of Starbucks coffee costs about $2.75.
Personally, I have been using Seeking Alpha Premium for my own stock research and analysis.