How Cathie Wood Could Catch a Break

It wasn’t looking good for Cathie Wood at all.

Since putting in its high of $159 in February 2021, her flagship fund ARKK sold off by as much as 81%.

Wood and her collection of high-growth ETFs were the darlings of the bull market run that kicked off in late March 2020.

But bull market heroes are often bear market villains, and that’s certainly been the case for Cathie Wood.

Back in February 2021, investors.com wrote an article with the headline “ARK’s Cathie Wood Schools Warren Buffet With 3 Top Stocks.”

Today, the news coverage is very different.

A recent revelation proved to be quite embarrassing for Wood. It turns out that ARKK got rid of its once-sizeable stake in chipmaking giant Nvidia (NVDA).

As a result, ARKK missed out on a blistering rally that saw NVDA become just the ninth company to hit a market cap of $1 trillion.

You would think that such news would be damaging to ARKK’s price. But as I wrote on May 10, ARKK was gearing up for a potential bullish breakout.

When I last wrote about ARKK, the ETF was trading at a price of $37.39. As of last Friday, ARKK was trading as high as $42 and there could be a lot higher to go still.

Let’s look at an updated price chart of ARKK so I can show you what I mean.

On May 10, ARKK had a series of important moving averages (MA), the 20-, 50-, and 200-daily, all trading in a very tight range.

This meant the market was consolidating and getting ready for a big move. If the market were to punch through all three MAs, it would trigger my bullish scenario.

That’s exactly what happened on May 18.

Since then, the 20-MA has crossed above the 50- and 200-daily. This is an initial sign that bullish momentum is on the rise.

The next step is for the 50- and 200-MAs to catch up and also start sloping upwards. If this happens, then the door would be wide open for ARKK to rally to $49.50.

Good trades are often very difficult ones to execute. For example, think about buying when there’s blood in the streets.

That’s an emotionally difficult trade for most investors to pull off.

When the whole world is selling their positions, it’s normal to doubt that things can get better ever again.

In the case of ARKK, it’s an ETF that I personally don’t care for at all. Cathie Wood did the investment equivalent of throwing a bunch of darts at the high-growth dartboard.

You could have bought virtually anything from the market bottom in 2020 and done well for yourself.

That said, ARKK is finally due for a pop.

I wouldn’t be as confident of hanging on to the ETF in the long run, but as a relatively short-term trade, this has the look of a strong setup.

Happy trading,

Imre Gams

Do you have any experience with ARKK or any of Cathie Wood’s other funds?

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