The ARK Innovation ETF (ARKK) may be the most extraordinary example of sheer brilliance and horrific money management combined.
We all watched ARKK fly to its peak in early 2021. And we all watched ARKK tumble to nearly 70% of that peak this year in 2022.
And we all listened to Cathie Wood dig herself deeper into her long-term beliefs about disruptive tech, disinflation, and the future of humanity.
In the ARK Innovations fund, Tesla Inc (TSLA) remains the largest holding, with ROKU Inc., Teledoc Health, Square Inc. and Zoom Video communications, the top five.
As we investors and traders began the week, ARKK, which already began to intrigue me as a potential bottom trade, started the session in the red.
Meanwhile, as ROKU, Zoom, Unity Software (also a holding that went green early) looked promising, I put up an ARKK chart to first assess risk.
Whether this is a bottom or relief rally remains to be seen, but why was the risk so compelling?
On May 12th, ARKK made a new low at 35.10. If you look at our two proprietary indicators, the Leadership chart shows that at the time, ARKK underperformed the benchmark.
The Real Motion indicator (momentum) showed that at the day it made the low, momentum was having a mean reversion, (current market price is less than the average past price). ARKK was oversold and our momentum chart reflected that. Incidentally, the price on May 12th also flashed mean reversion when the price broke below the Bollinger band, and then closed above it.
Since then, ARKK made a higher low June 14th at 35.65. Soon after, by June 23rd, ARKK began to take leadership over the benchmark. Subsequently, Real Motion flashed a positive divergence in momentum when the red dotted line crossed over the 50-day moving average (blue line).
Back to today.
After ARKK opened lower first thing, the rally began. ARKK shows a stronger outperformance to the benchmark now. It also has better momentum, in fact the best momentum since April when the price was trading above $60.00.
ARKK cleared the 50-DMA on price for the first time since April as well. Now, we want to see it hold and close over the 50-DMA again to confirm a phase change to recuperation. We want to see momentum continue going strong.
Which brings me back to risk. As an early-in-the-day buyer, we were able to risk under the 2022 low. If this is truly a bottom, that low should hold. If not, we have a viable stop loss.
Plus if we are right, we can add to the position and raise the risk point accordingly.
All in all, we applied smart money management to a potentially brilliant fundamental narrative.
Stock Market ETFs Trading Analysis & Summary:
S&P 500 (SPY) 378-380 support zone after a rocky start
Russell 2000 (IWM) Support is 170 and needs to clear 174 to stay in the game
Dow Jones Industrials (DIA) 307 support and needs to clear 315
Nasdaq (QQQ) 282.50-283 pivotal and 290 resistance
KRE (Regional Banks) 56 the 200 WMA 60 resistance
SMH (Semiconductors) If yields stay lower, then this could see it way back over 200
IYT (Transportation) 211.90 support with resistance at 220
IBB (Biotechnology) Our leader and maybe savior as in 2009, it was the first of the Family to bottom. Now needs to hold 120
XRT (Retail) Respected the inside day and broke out over 59.24 now support.
Twitter: @marketminute
The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.
