(The Street) - Shares of the Ark Innovation Fund (ARKK) - Get ARK Innovation ETF Report have had a pretty solid couple of days.
From Monday’s low to Wednesday’s high, the ETF has rallied 11.5%.
However, as good as the rally felt, let’s not lose sight of reality, which is that ARKK remains trapped in a brutal bear market. So do most growth stocks.
If it weren’t for Tesla (TSLA) - Get Tesla Inc Report holding up relatively well — ARKK’s top holding — then the ETF would likely be down much more than it is now.
Cathie Wood has blamed some of the losses on the market being irrational.
However, one could argue that the ARKK ETF is still up more than 162% from the 2020 low, which outperforms other major indices by a fair amount.
However, the S&P 500 and Nasdaq remain near the highs, down just a few percent from the all-time high.
Even though buyers of ARKK are still up from the lows, it certainly doesn’t feel that way.
Earlier this week, we were lucky enough to call out the bullish reversal in ARKK as it reclaimed last week’s low at $82.65.
At the time, it was scary to step into the market as stocks had been in free-fall. But this offered bulls a very clear-cut risk/reward proposal.
By getting long at $82.65, they could use the recent low near $80 as their stop-loss and look to ride the ETF higher. It helped that there was bullish divergence on the RSI reading.
How high it would go was, and to some extent still is, the question.
For now though, I would simply remind traders that the ARKK ETF remains in a bear market. It’s down more than 40% from its all-time high and remains in a painful downtrend.
Looking at today’s action specifically, I was cautious on the ETF after two robust upside rally days and a gap-up on the third day.
Typically, the third day of a big move is not the time to finally get long, but rather, get cautious. In this case specifically, it was actually time to book some profits and/or get short based on the levels.
Because ARKK was running into its declining 10-day moving average, it could run into some resistance. However, the $89 presented just as much of a hurdle. That’s the low from the prior bullish reversal and the December low.
With ARKK peeking above that level and reversing lower, bulls needed to be aware of the significance of this area.
On the downside, last week’s low is on watch. A break of $82.65 puts this month’s low in play near $80. Below that and it’s possible we see the $75 area, where ARKK has its 161.8% downside extension and the rising 200-week moving average.
By BRET KENWELL
January 12, 2022