$69! Is Cathie Wood's $ARKK Invest out of the woods?
Chart Analysis: Taking profits on our $ARKK Short ($SARK)
Thanks for taking the time to read today's blog post where we take an in depth look at ARK Invest, their strategy, the chart, why we shorted and why we are taking profits!
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Blood in the streets for $ARKK!
The blood has been in the streets for Cathie Wood's Ark Investment firm for almost a year now since it hit a top of $160 and got cut almost by a third to $69. Almost all holdings are now down over +40% and some as much as +80%!
Let's first take a look at ARK's investment strategy, their investments, then at the chart and why certain patterns would have kept us out of a long position. Then we'll look at why we got short where we wanted to be taking profits.
As Ark Invest states on their website they are top-down research firm, defining how the world is changing and where it is headed. So they identify areas of disruption and select portfolio companies based on their bottom-up research method. They monitor conviction plays and market volatility through weekly meetings to identify companies to trim and add to.
What's noticeably different about ARK's investment strategy is that they are a long only fund mainly looking at growth stocks. Quick hot take from me, their fund should look to hedge long term positions instead of being long only as growth tends to be volatile long term.
It was not a good year for growth stocks in 2021 and if you take look at ARK's holding below, it shows! We'll let the numbers speak for themselves...
So what would have kept us out of a long position on $ARKK in 2021?
The $ARKK ETF (ARK Innovation ETF) created a very big #bear flag in 2021 (denoted by white lines in the chart below) on the weekly and daily charts while relative strength (RSI) diverged negatively. We also put in an island top and could not hold above $140 after breaking below $143, when gaps in price do not get filled to the upside it's a big problem for that stock, ETF or any asset class really as it means there's bag holders.
So with bag holders (fintwit's way of saying funds or retail that are long the stock who are underwater) from $159 to $143 we can now consider only getting long for a trade above the 200 SMA daily, but if price is below $140 were going to see continued selling into strength as any market participants that are bag holders and trapped long are going to fade strength.
Simple right? Right.
Also, if you started shorting $ARKK anywhere from $159 to $143 you're in the green and continue shorting strength if weekly RSI is below 70. So now let's say we are a fund that is short or even if we got long above $100 where our trade idea would be violated. Than we would want to know where longs are exiting and where we can continue to short, patterns and moving averages help us do just that!
$ARKK continued to see selling pressure from $127-$130, pretty much ranging below the 200 that in all of 2021. Second, the 200 SMA remained flat which is usually a headache for longer term traders. Third, we created a symmetrical triangle pattern on the daily and weekly charts (see chart below). When we confirmed that pattern and broke below $100 it confirmed us exiting our longs and pushing our shorts.
And sheeeeesh what a move lower we've gotten since!
We hit the exact target I outlined in my call with @Wolf_Financial in our SquareSpace. You can find the recording here (you can find me talking about the market at the 1:00 hour mark): Good Morning Fintwit Space Hosted by @StockMKTNewz.
$70 was our target and it got hit today! So now we take profits and take some long exposure if you are interested with a defined trading plan above $70.
Enjoy your week and remember to...
Miguel Ferreira (@wizdaytrader)
Essex's Trading Quote of the Day (QotD)
“Nothing like price to change sentiment."
Helen Meisler, writes a daily column for RealMoney.com