The Ark Innovation Fund (ARKK) has been under intense pressure in the past few weeks. The ARKK price ended the week at $104.30, which was more than 7% above the lowest level of the week. It is still down by almost 35% from the year-to-date high.
Cathie Wood’s flagship fund pressured
For starters, the Ark Innovation Fund is the flagship fund by Cathie Wood, one of the most prominent women in Wall Street. The fund has an expensive expense ratio of 0.75% and owns some of the best-known technology stocks in the United States. Unlike most ETFs, ARKK is an actively managed fund, meaning that the manager adds and reduces holdings at any time.
In 2020, ARKK was one of the best performing funds in the United States as most of its portfolio companies soared. This happened as more people stayed at home and relied on technology products like Shopify, Zoom, and Spotify. ARKK gained by more than 260% from its lowest level in March 2020 to December 31st.
Recently, though, ARKK price has slumped by more than 30% from its highest level this year as investors have rotated from technology stocks to value. This is mostly because of the ongoing fear of inflation and high-interest rates.
Indeed, data released this week showed that US inflation rose by 4.2% in April while producer inflation rose by 6.2%. And some analysts expect that it will rise to 20%, pushing the Fed to hike interest rates.
Also, investors have grown wary about technology valuations and growth as the world economy reopens.
Is the worst over for ARKK?
ARKK portfolio holds some well-known companies. The biggest holding is Tesla whose share price is down by more than 34% from its year-to-date high. It is followed by Teladoc, the virtual health company, whose stock has fallen by 54% from its high. The Shopify stock has declined by more than 27% while Twilio is down by more than 35%.
ARKK Fund top holdings
Cathie Wood believes in her portfolio holdings. She believes that these companies will continue doing well since fear has dominated the market. She is not alone. Some analysts, including Jim Cramer and Thomas Lee believe that tech holdings will start to recover.
The main thesis is that these companies have a lot of room to grow and that the shares are getting oversold. Also, they believe that a gradual tightening by the Fed will not have a significant effect on tech stocks.
Some, however, like Puru Saxena, a Twitter user and short-seller, believes that the fund is overvalued and that its price will soon retreat.
ARKK ETF technical outlook
The daily chart shows that the ARKK price has been in a steep downward trend recently. Along the way, it has moved below the 38.2% Fibonacci retracement level and is just a few points above the 50% level. The 50-day and 100-day moving averages have made a bearish crossover. Further, a closer look shows that the fund is in the third stage of an Elliot corrective wave.
Therefore, in my view, I suspect that the fund will keep falling as bears target the 50% retracement at $96 and then start a slow recovery phase. Therefore, bulls aiming to buy the dip should be a bit patient going forward.