How to Buy Ark Technology ETFs and Protect Your Self-Respect (NYSEARCA:ARKK)

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The Mack Truck Is Behind You. It Doesn’t Feel Right To You. You Have Already Passed.

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DISCLAIMER: This note is intended for US recipients only and is not specifically addressed or intended to be relied upon by any UK recipient. Any information or analysis in this note is not an offer to sell or a request for proposal. to buy any securities. Nothing in this note is investment advice and should not be relied upon when making investment decisions. Cstrian Capital Research, Inc., its employees, agents or affiliates or related persons, including the author of this note, may take positions in any stock, security or financial instrument referenced in this note. The opinions, analyzes or possibilities expressed in this note are those of the author as of the date of publication of the note and are subject to change without notice. The companies referred to in this note, or their employees or affiliates, may be customers of Cstrian Capital Research, Inc. research or publications.

clear your mind

When everyone everywhere says the same thing about stocks, that’s often not true. Or, to be more specific, it’s usually old news. If talking heads are telling you this, let’s say, will Bitcoin go big? probably already is is big. TV experts, ah, man, nuclear power is going to be the bomb because Russia or something? Presumably the spot price of uranium has already risen. All your friends, everyone on YouTube and the Wall Street Journal saying it’s going to get tough for growth stocks? All right, you can handle it.

In a recent blog post, we explained why we think stock prices are driving the news, not delaying it. You can read the entire article here, but in essence, our firm view is that what we all call “news” is simply new to the population in general. Big money is not new to decision makers. Bill Ackman is not making investment decisions based on what he read in the WSJ that morning. Good chance Warren Buffett didn’t watch Jim Cramer’s Crazy money – and even if it does, the trigger finger probably doesn’t expect to act according to Jimbo’s descriptions. And it’s likely that the unimaginably large amount of money circulating en masse around America’s pension systems is not being deployed based on a CNBC market update.

You see, by the time the news reaches the retail investor, it’s actually not new, and worse yet, the big money is already in the act. Therefore, the notion that you can gain an advantage by investing based on the news and therefore the prevailing market sentiment seems to us structurally and undeniably wrong. you need to be ahead in front of the news and sensitivity. You can do this up to the nth degree like in the now famous Renaissance Technologies funding model, spend your time watching stock charts, or keep it simple and just zig-zag while other people are zigzagging.

The Master, of course, summed it up in a fitting concise form a hundred years ago. “Be greedy when others are afraid and fear when others are greedy” is the refrain that still resonates from Omaha.

Well, there is a lot of fear in the market right now, and that alone should raise your antennae and look for opportunities to be greedy.

We cover a lot of growth stocks, and the overwhelming majority of them have stock charts that stare at the stars, not the swamp. This totally contradicts everything you see and hear in the real world right now. So, either our chart method is completely wrong – it’s very possible of course, but the same method has managed to help us look for recent highs and lows in the market (you can read more about this here).

Or there is a typical disconnect between graphics and the real world. We believe this permanent disconnect is just the x-axis position. Specifically, while people around you are worried about what will happen to their growth stocks, i.e. what is hidden on the hard right edge of the x-axis, most of the sales have already been made, and are now being made, in our view. in rear view.

Buy Standing Poster Boy

In this context, the Ark Innovation ETF, the two main Arc technology funds (NYSEARCA:ARKK) and Ark Next Generation Internet ETF (NYSEARCA:ARKW) currently offers compelling buying opportunities. Most of the internet and most of all your friends and family will probably laugh at you for repeating this idea in a polite society. The absolute example of Robinhood enthusiasm during the height of the COVID crisis, classically trained fund manager Cathie Wood, who runs Ark Invest, has taken brick bats too late. It could be, too, because the fund’s performance has been so bad in recent months. Here’s how it has performed against a selection of three major index ETFs over the past twelve months.

Arc funds and indices

Arc Funds and Indices (YCharts.com)

Oh dear. So far, the kid at the car wash is right. You should have bought Dow!

However, this is quite lacking. Of course, oddly enough, high-risk ETFs are likely to outperform strong ones during times when the market has declared risk absolutely off, as has been the case in the last twelve months.

So, let’s zoom out a bit and see what happens over a longer period of time.

Longer term Arc and indices

Long Term Arc Funds and Indices (Ycharts.com)

Easy. When the risk is clear, Ark funds outperform, returning to earth when the market is startled, then fleeing again when calm falls on market participants. From the broader rating chart above, you can see why we chose the less popular fund ARKW. Outstanding performance against ARKK is mostly due to Bitcoin holdings within ARKW, specifically the holding at Grayscale Bitcoin Trust (OTC:GBTC). In staff personal accounts, we believe GBTC is a low-risk way to gain access to bitcoin, and so we are happy to have some, either directly or through ARKW, despite huge discounts on NAV and administration fees.

We believe that the most rational way to evaluate ARKK and ARKW is as follows. First, treat disproportionate COVID stimulus spending on funds as an anomaly. Here are two news from late 2018. (You can open the full page version, here).

ARKK ARKW Stock Chart

ARKK and ARKW x Covid-19 (TradingView, Cestrian Analysis)

If you just close your eyes and assume that Joe P. Retail and his basement buddies have never broken their incentive control over these things – then you can ignore that peak that peaked around February 2021 and just say, here it is. Several growth-focused ETFs that trade in an upward sloping channel so I can either buy and hold for a long time or try to trade through that channel or both. We see no reason why this green channel should not continue, and in fact, we think that our main expectation for funds is that they can continue to offer long-term value appreciation to approximately the extent that the angle of that channel indicates. With just this logic, you can buy ARKK or ARKW and forget about them for a few years while they gain in value.

What about more bullish cases? Well, let’s take a look at ARKW specifically. Here are the top ten holdings (source – Seeking Alpha).

ARKW holdings

ARKW Top Ten Holdings (Alpha Wanted)

This looks good to us. We do not cover TSLA, but we do have stock in staff personal accounts and are very optimistic about the name. GBTC, bullish too. Blok (SQ) shows a table that is now common to many such names.

SQ Chart

SQ Stock Chart View (TradingView, Cestrian Analysis)

Q1 March 2020 After the study of Wave 1, the textbook brutal Wave 2 is down. And the stock, in our view, is climbing the ladder in Wave 3 and heading towards a new high. We can continue.

Ark Invest could use an upgrade in its marketing in our opinion. Having 25-year-olds making YouTube videos about disruptive innovations might be a good way to attract entries from other 25-year-olds making YouTube videos, but this message just doesn’t fit us, and possibly other adults. But if you look at the largest holdings in these funds, they’re not banzai startups run by weird-haired kids. They are pukka companies run by seniors like us. Musk, Dorsey, and others – they’re not quite spring chickens, and they don’t need to be marketed as such. We never watch an Ark video or read their research because in our opinion it’s not very good.

But what are we make Notice what Cathie Wood is says. Because he’s a classically trained fund manager and he’s good at it. He says the same thing over and over about inflation. So he says the current bout of inflation is as temporary as Jerome Powell once insisted. And you know? We agree. Each of the companies that are ARKK or ARKW champions are the cost curve leaders, deflationary forces in their sectors.

At Cstrian, our professional investment careers have been spent investing in deflationary technology companies. The S&P 500 is run by deflationary tech companies. The theme of “deflation” isn’t some weird double talk, it’s definitely something and a lasting one. Gas prices are a bit volatile right now, food is insanely expensive this week, that’s not the deflation Ark is talking about. To annoy banks, telecommunications companies, automakers, This what they mean is deflation.

Altogether, we believe that ARKK and ARKW are each compelling stock to buy right now and hold for several years. Our chart for each is similar – again, we’re leaning towards ARKW due to Bitcoin exposure, but against that, ARKK is probably at least as good a choice for traders who want much more liquid and larger positions.

ARKW View

ARKW View (TradingView, Cestrian Analysis)

We believe ARKW has bottomed out on Wave 1 retracement of 0.786; We think wave 1 could reach highs between $224-317 in the next 12-18 months with 100% and 1.618 extensions; and we think it could continue to rise after a modest Wave 4 correction. (Full page graphic, here).

Want a more careful approach? How about that then? (Full page graphic, here.)

ARKK View

ARKK View (TradingView, Cestrian Analysis)

You could say that ARKK is in the early stages of the last Wave 5 to complete the 5 wave cycle that started in 2017; Wave 5 could end just above the previous W3 peak, i.e. somewhere between $160 (a new high, only) to $172 (if W5 = W3 amplitude). Oh and if you think these funds don’t trade with technical norms, check it out. perfect ARKK Wave 3 peaked at 3,618 extensions of Wave 1. Textbook!

So if you want to be brave consider getting ARKK or ARKW. We have ARKW in staff personal accounts and rate both funds at Buy.

Cstrian Capital Research, Inc – April 8, 2022.

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