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Is the ARK Innovation ETF showing signs of finally bottoming out?

Is the ex-toast of Wall Street, Cathie Wood getting into deeper and deeper water due to her funds' underperformance or is now the right time to buy her funds?

Ark Invest

Cathie Wood, chief executive officer and chief investment officer of Ark Invest, has been making headlines lately but not for the same reasons she did back in early 2021. This was when her flagship fund, the ARK Innovation Exchange Traded Fund (ETF), returned an astonishing 325% from its March 2020 pandemic low, well above the S&P 500's 120% return, when lockdowns led to a surge in the price of many of the technology companies Wood had invested in.

The famous investor, who has millions of devoted social media followers she regularly updates via YouTube videos and tweets in which she sets out her vision that major technological advances are changing the world, continues to add to the shares she holds, such as Coinbase – down 80% from its peak - despite these trading in steep bear markets.

The ARK Innovation ETF has had a very rough time since its February 2021 peak at $156.58, slipping back close to its March 2020 pandemic low at $37.85 last week, as many of Wood’s technology-focused investments have crashed, leading to a drop of over 55% year-to-date, much worse than the S&P 500’s near 20% fall.

Added to that, other funds Wood oversees as the head of ARK Invest, including ones focused on financial technology and space exploration, are among the worst performing ones in their category.

Her current poor performance across the board begs the question whether the ex-toast of Wall Street, who now goes down like a bomb with some investors, has just been fortunate or whether Wood is indeed an investment genius and can turn things around.

Is now the right time to buy the ARK Innovation ETF?

With the ETF trading at two-year lows and having formed a “Hammer” on the weekly candlestick chart last week, close to the March 2020 low at $37.85, investors may wish to start buying the fund again from a technical perspective, if, and only if, a rise and weekly chart close above last week’s IG Daily Financial Bet (DFB) high at $44.97 were to unfold this week. Only then would the bullish “Hammer” formation on the weekly chart be confirmed.

If so, a rise back to the 2018 and 2019 highs at $49.85 to $49.91 and the psychological $50 mark may ensue. If this resistance zone were not to cap, the March 2020 low at $51.86 may do so.

For a long-term bullish reversal pattern to be validated, a rise and weekly chart close above the March peak at $71.99 needs to be seen.

Investors who believe that Cathie Wood’s strategy is the right one and who wish to buy, or hold, the ARK Innovation ETF would, however, be well advised to place a stop-loss below the March 2020 pandemic low at $37.85.

After all, the weekly chart of the fund looks quite similar to that of the Nasdaq 100 during the tech bubble between 1999 and 2001. Back then the Nasdaq lost 78% from its peak.

More aggressive traders could buy the ARK Innovation ETF at current levels with a stop-loss at either last week’s $39.99 low or at the recent May trough at $35.11 on the DFB with a view of it heading above last week’s high $44.44, in which case at least a minor bottom on the daily chart will be formed.

It should be noted, however, that buying a fund, or share for that matter, which is trading in a clearly defined downtrend – with lower highs and lower lows seen on the daily and weekly charts – is a bit like trying to catch a falling knife: it is risky, and one could get hurt.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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