Another Profitable Trade

It’s time to close out another great trade.

On May 10, I alerted readers to an exciting bullish opportunity in Cathie Wood’s ARKK ETF.

Back then, ARKK was trading at a price of around $37.40. The target on the setup was $49.50. This meant a potential run of 32% in the stock.

On June 7, readers were given an update on ARKK. In that update, ARKK was trading at $42.

When you start seeing some profit in a trade, it can be tempting to grab it and run.

Sometimes, that’s the right decision to make. But in this case, we told readers that there was still more room for ARKK to run. There was no change to the $49.50 target.

Finally, on July 13, ARKK managed to reach the target. And while the stock could go higher still, my analysis suggests it’s prudent to take profits and move back to the sidelines.

Let’s walk through an updated chart of ARKK together so I can show you what I mean.

There are two important things going on with this chart. They both suggest that bulls shouldn’t overstay their welcome.

First, we have an important resistance level going back to August 2022. This key level comes in at $52, which is where ARKK topped out after staging a rally starting in May.

After reaching $52, ARKK sold off over 45%. The stock didn’t find support until the very end of the year.

Whenever a stock is trading so closely to such an important level, it makes sense to step aside and let the market do its thing.

Either prices will break through the level, which furthers the credibility of this bull run in ARKK, or they will hit it and reverse.

If the market breaks through, then it’s a matter of looking for another setup to go long. On the other hand, if the market breaks down after failing to break through, then we’ll have avoided giving back our gains.

The second important feature of this chart is the overbought reading in the RSI. Overbought and oversold readings on their own aren’t all that important.

When combined with other technical indicators, however, RSI readings can be strong additional evidence to consider.

That’s why the combination of the overbought reading and the proximity of that key level is enough for us to take our gains on this trade and move on to the next one.

Happy trading,

Imre Gams

Have you been following along with this trade since the beginning?

Let us know your thoughts – and any questions you have – at [email protected].