ARKK ETF price analysis: the ETF could fall below $110 within the next month
The ARKK ETF price analysis shows profit-booking at higher levels and the likelihood of a deeper correction
The ARK Innovation ETF (ARKK) founded by Catherine D Wood in 2014 is an actively managed thematic fund. The fund invests in companies that manufacture products or provide services, capable of disrupting the sector it belongs to. The fund has net assets of $17.68 bn and an expense ratio of 0.75 per cent.
ARKK has been a huge outperformer in the past year and has returned over 152 per cent for its clients. This massive outperformance has attracted investors who pumped in $8.2bn in various ARK funds in January of this year, outstripping the larger ETF players such as BlackRock or State Street.
Bloomberg data showed that investors injected about $464m on February 26 after the fund had dropped by about 15 per cent, indicating that traders are viewing the dips as a buying opportunity.
However, with US bond yields on an upward trajectory, can ARKK maintain its outperformance? Let’s analyse its weekly and daily charts to find out.
ARKK ETF technical analysis - weekly chart
ARKK ETF rallied from an intraday low of $32.89 in March of last year to an all-time high at $158.91 in February, a 383 per cent rise within a year. However, profit booking in the past two weeks has pulled the price down to the 20-week EMA.
The failure to rebound off the 20-week EMA with strength suggests a lack of buying on dips. If bears can sink the price below the 20-week EMA, the decline could extend to the 38.2 per cent Fibonacci retracement at $110.76.
In strong uptrends, the price usually rebounds off this level as it offers a low-risk buying opportunity to traders who believe the uptrend will resume.
Conversely, if the price breaks below this support, it will suggest a change in the bullish sentiment and the price could then drop to the 50-week SMA.
ARKK ETF technical analysis - daily chart
What is your sentiment on ARKK?
The ARKK ETF analysis of the daily chart shows traders bought the dip to $125.46 on February 26, but the bulls are facing resistance near the moving averages. This suggests that bears are selling on rallies to resistance levels.
The moving averages are on the verge of a bearish crossover, which suggests a possible change in trend. If the price breaks below $125.46, the ETF could start a deeper correction.
In an uptrend, an extended decline usually indicates a short-term top and delays the start of the next leg of the up move.
However, this bearish view will invalidate if the price turns up from the current levels and rises above the moving averages. Such a move will suggest that bulls are buying on dips.
If the buyers can drive the price above the all-time high, the next leg of the uptrend could begin. The next target on the upside is $180 and then $200.
Is the ARKK ETF a buy or a sell at these levels?
The ARKK ETF is currently witnessing a correction. A break below the 20-day EMA and the 50-day SMA is a sign that the short-term trend has turned negative. Therefore, as long as the price sustains below the moving averages, the path of least resistance is to the downside. Therefore, positional traders may wait for the decline to end and a bottom to be confirmed before buying.
Contrary to this assumption, if the price turns up from the current levels and rises above the 20-day EMA, it will suggest that the short-term pullback may be over. Such a move could offer a buying opportunity for the aggressive trader.
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