Don't Let 'Big Brother' Stop You From Accepting New Facts

Editor's note: The future won't always look like the past. Today, we have a great example of this from Marc Gerstein, director of research at our corporate affiliate Chaikin Analytics. In this piece – recently published in Chaikin PowerFeed – he covers a surprising bullish signal in one hated fund... And most important, he discusses how to keep bias out of your investment decisions when conditions change.

Also, the markets and our offices will be closed on Monday in observance of Juneteenth. Your next issue of DailyWealth will publish on Tuesday, after the Weekend Edition. We look forward to rejoining you soon.

George Orwell's dystopian novel 1984 is one of the most popular books of all time...

It's set in a place called Oceania. In it, the dictator-like leader "Big Brother" runs everything.

Many people focus on that point when they talk about the book these days. They argue that like Big Brother, the government watches every move we make, with cameras on seemingly every corner.

But I bet you didn't realize Orwell's classic also contains a valuable investment lesson – one we can see at work in a specific fund today...

You see, Oceania is always at war. Sometimes, it battles Eurasia. Other times, it fights Eastasia.

Importantly, though, Oceania has a strict "no change" policy. It doesn't allow for changing facts – like who the country is fighting on a particular day. Here's what Orwell wrote...

No change in doctrine or in political alignment can ever be admitted. For to change one's mind, or even one's policy, is a confession of weakness. If, for example, Eurasia or Eastasia (whichever it may be) is the enemy today, then that country must always have been the enemy. And if the facts say otherwise then the facts must be altered. Thus history is continuously rewritten.

Imagine if the facts couldn't change in the markets...

We might not be able to rewrite history. But investors who follow a similar no-change doctrine would either be "bearish" or "bullish" on a stock from the beginning... And they would stay that way until the end of time.

But as we'll discuss today, the facts can change. As investors, we need to accept that...

Fortunately, we have tools on our side to help us stay as objective as possible. At Chaikin Analytics, we use the Power Gauge. It gathers all the information on technicals, fundamentals, and more, and translates it into a simple rating for each investment.

Unlike Big Brother, our one-of-a-kind system doesn't need to edit history to avoid changing facts. Over time, it switches freely between "bearish," "neutral," and "bullish" grades.

Cathie Wood's ARK Innovation Fund (ARKK) is the perfect example today. Based on the facts, investors were correct to follow the Power Gauge's shift to "neutral" and then to "bearish" starting in early 2021...

ARKK's price fell about 74% from the system's initial downgrade to "neutral" on February 19, 2021, through May 18 of this year. That was much worse than the Technology Select Sector SPDR Fund (XLK), which gained roughly 16% over the same span.

But it's a different story with tech stocks these days...

After getting crushed for a long time, this sector is surging once again. XLK is up around 38% in 2023. And Wood's tech-heavy exchange-traded fund ("ETF") is up about 41%.

The Power Gauge is now "bullish" or better on 11 of ARKK's holdings. It's only "bearish" or worse on three holdings. And on May 19, it turned "bullish" on the ETF. Take a look...

Now, contrary to what Big Brother believes, the Power Gauge isn't admitting weakness. It's simply recognizing updated data about Wood's flagship ETF – in other words, new facts.

And so far, the Power Gauge has proven to be good at tracking ARKK's moves...

Our system first ranked the ETF in May 2015. Since then, ARKK's annualized average return on days when it's "bullish" or better is 32%. On "neutral" days, it's 15%. And on "bearish" or worse days, it's a 4% loss.

In Orwell's classic novel, Big Brother needed to project strength. But we're not living in that dystopian universe...

We're living in the real world.

So we can acknowledge ARKK's bad times in the past. And now, with the Power Gauge as our guide and tech stocks soaring in recent months, we can see the bullish setup.

Now, that doesn't mean we have to rush out and buy ARKK shares today.

Wood strikes me more as a futurist than an investor. That could be spectacular if things break her way. But it would be disastrous for investors like us if they don't.

In the end, the Power Gauge looks at all the facts. Wood's tech-heavy ETF is thriving right now. But that won't always be the case.

So our takeaway is simple... Flexibility is key. And when the facts change, it's OK to change our minds.

Good investing,

Marc Gerstein

Editor's note: One expert has found a way to make huge potential gains using the Power Gauge... thanks to a powerful indicator that shows where Wall Street is about to move its money next. It's a technique with a 94% success rate. And the founder of Chaikin Analytics says the time to use it is right now... because the last time the markets were at a turning point like this, you could have doubled your money 63 times. Click here for the full story.

Further Reading

Tech stocks were the losers of 2022. But that situation has flipped this year. After surging higher, the Nasdaq 100 Index recently broke out to a new 52-week high. And this rally includes an even more powerful sign that the outperformance in tech can continue... Read more here.

Even in a new bull market, you'll find both winners and losers – and that's true today. Right now, we're seeing a strong uptrend in tech. But one group of stocks is lagging. The reason comes down to sector performance... Learn more here.