ARKK ETF: Is Now A Good Time To Invest After 70% Decline? | Seeking Alpha

Bull and Bear Stock Market Prices Concept.


cathie wood’s ark innovation etf (nysearca:arkk) is an etf I’ve owned before. I sold my position months ago and now I am wondering if this is a good time to start a position. In this article, I’ll examine some charts to see if now is a good time to invest in arkk.

Reading: Is arkk a good buy

chart 1 – monthly arkk

Price Chart

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If we first look at the big picture, we can see on the monthly chart how arkk sold from a high of $160 in Feb 2021 to its current price. arkk has lost just over 70% in the last 18 months. the blue arrow in chart 1 shows the month in which the 6-month moving average closed below the 10-month moving average. that was an excellent time to sell arkk. arkk then closed lower for eight consecutive months. readers of my other articles know that I place a lot of value on the long-term 10-month moving average. when the stock is above that moving average, I consider the stock to be bullish. when the stock is below its 10-month moving average, I consider that a bearish indication. right now, arkk is well below the 6-month and 10-month moving averages. what intrigues me is that arkk has returned to a level that he has relied on before. basing occurs before an action advances. the base period is when the smart money is establishing its positions in the security. basing also allows the moving averages to decline closer to the share price, and then the moving averages can flatten out before they also start trending higher. the green box on the chart shows a level where arkk spent a lot of time in the past before rising to $160. could arkk be in the early stages of building another base before ascending?

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chart 2: weekly arkk and relative strength

Price Chart

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chart 2 shows arkk along with its 30-week moving average. the same principles apply. when the price is above the 30-week moving average, it is bullish. when the price is below the moving average, that is bearish. it is easy to see that consolidation is taking place as arkk has been stable around $45 for the last 11 weeks. This was the area where Arkk consolidated during the March 2020 COVID low. Again, this base or consolidation phase will allow the 30-week moving average to decline closer to the stock price. then the 30-week moving average may flatten out and then rise after the price closes above the moving average.

The bottom panel of Chart 2 shows Arkk’s relative strength ratio compared to the S&P 500 Index. When the black line is rising, that shows Arkk is outperforming the S&P 500 Index. When the black line is is falling, that means arkk is underperforming the s&p 500 index. after a long period of underperformance, it appears that arkk is improving against the s&p 500 index. the black line is flattening or bottoming out. Since May 2022, Arkk has held up well compared to the main index. I consider that to be a good sign. What I want to see on this chart is the relative strength relationship above the 30 week blue moving average. That would be a good indication that Arkk could be expected to outperform the S&P 500 Index over a period of time. see the period after the covid low until February 2021.

graph 3 – daily arkk

Price chart

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chart 3 above shows arkk’s daily price action compared to its 20, 50 and 200 day moving averages. You can see that Arkk closed below all three moving averages in November 2021 and has not looked back. arkk has declined until it hit its recent low in May at $35. since then, arkk is up more than 30%. there are some bullish developments on the daily chart. arkk bottomed out in May at $35 and has made a number of higher highs and higher lows. that is the textbook definition of an uptrend. arkk closed on Friday above its 20 and 50 day moving averages. you can see from the chart that not much has happened since arkk’s decline started in november 2021. another bullish development is that the 20 day moving average is sloping higher. These are all bullish developments for arkk.

on the bear side of the coin, arkk is still well below its 200 day moving average which is the descending green line at $73. there are no signs that the 200 day moving average is flattening out, never mind that it is trending higher. all daily moving averages are still in bearish alignment. in this case it means that the fastest or shortest moving average, the 20-day moving average, is below the 50-day moving average, which is below the 200-day moving average. in a long-term uptrend market, this would reverse. the 20-day would be above the 50-day, which would be above the 200-day moving averages. furthermore, all three moving averages would have a slope or an upward trend. we don’t have that condition now. the latest bearish development i see is a bearish chart pattern known as a rising wedge. which is outlined by the two green trend lines on the chart. this price pattern often precedes a downward movement in price. three other examples are shown in this graphic with blue arrows.

once this bear market is over i want to take a position in arkk as i think it will outperform the s&p 500 in the next leg. what i need to see in arkk are a few things. first, i need to see that arkk continues to build his base. I expect arkk to break down from here due to the rising wedge. Note that Arkk could break lower but still not drop below the $35 low it set in May. In other words, the arkk low in this bear market could already be in place. if arkk goes back to $40 a share, that might be a good place to start a position. Second, I need to see the 20-day moving average outperform the 50-day moving average. third, looking at the weekly chart, i want to see the 30-week moving average flattening out and the price breaking above the 30-week moving average. that would be another good place to add to an arkk position or to start an arkk position. the last signal would be on the monthly chart. when the price moves above the 10-month moving average, it can go all out, so to speak.

In short, I use price action to determine when to buy or sell a stock or an ETF. Over the years, I’ve learned the value of climbing in and out of positions rather than being all in and all out at the same time. the s&p 500 may have already bottomed out and so i want to start building positions in leading stocks for the next leg of the rally. it’s also possible that I’m wrong about the bottom being in place. With that in mind, I like to scale a position right now, rather than go all-in right now. I would look to buy some $40 arkk and then control the position. if arkk continues to move lower and drops below $35 then i would sell some arkk as my analysis may be wrong. however, if arkk can hold the May low at $35 and continue to base, I would look to increase my position as arkk rises and closes above the 30-week moving average. then it would be all in when the price closes above its 10-month moving average. this is how i look forward to trading arkk in the future.

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