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Stock Markets

06/07/22, 08:02

Smiling Young Businessman

Michele Schneider

Michele ‘Mish’ Schneider serves as Director of Trading Education at For 20 years, has provided financial information and education to thousands. MarketWatch named Mish one of the top 50 financial people to follow on twitter. In 2018, Mish won the Top Stock Pick of the year for RealVision. Recently, she has appeared on Bloomberg TV and
Mish spent 13 years as one of the only female members of several NY Commodity Exchanges in the World Trade Center. Her book, Plant Your Money Tree: A Guide to Growing Your Wealth earned best new release on Amazon in 3 categories-Intro to Investing, Retirement Planning and Business and Finance. It also won the award for best wealth book 2019. With 40 years of trading experience, Mish is not only considered one of the best swing traders, but also one of the best teachers, combining her 40 years of trading experience along with a special education background.

Did Cathie Wood's ARK Innovation ETF Bottom?

ARK Innovation ETF (NYSE: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 ARKK fund, Tesla (NASDAQ:TSLA) remains the largest holding, followed by Roku (NASDAQ:ROKU), Teladoc (NYSE:TDOC), Square (NYSE:SQ) and Zoom Video (NASDAQ:ZM).

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 (NYSE:U) (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 12, 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 12 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 14 at 35.65. Soon after, by June 23, 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)..

After ARKK opened lower yesterday, 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.

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