Opinions
Jim Cramer - Mad Money
ARK Innovation ETF
ARKK-N
BUY
Dec 08, 2021
Volatility notes by Mark Sebastian, technical analyst Usually the VIX and S&P trade in opposite directions. When this pattern breaks, it signals the market is changing course. On Oct. 21, the VIX bottomed at 15 while the S&P was at 4,550. In November, the S&P continued to rally. Strangely, the VIX rallied too, a classic sign that the market was getting too hot and headed for a beat-down. A few weeks later, the S&P peaked and the VIX exploded. On the Nov. 18 peak to last week's lows, the S&P fell only 4%, while the VIX shot up 17.59 to 31, because the sell-off was concentrated in the high-growth tech Nasdaq rather than the wider S&P. In the same time period, it took only 10 days for ARKK to put a top out after the VIX bottomed on Oct. 21, then ARKK gradually sank from 4125 to $107 as the VIX rose from 16 to almost 20. is down 17% YTD. When Omicrom hit headlines on Black Friday, the VIX exploded and ARKK rolled over as the market liquidated all manner of stocks. Investor sell tech stocks, which triggers people to sell ARKK, which further depresses the stocks in that ETF. However, now ARKK is recovering as the VIX declines and calms. The VIX says this market recovery is indeed real. Today, the S&P was flat, but the VIX sank rapidly; to Sebastian this means that as long as the VIX keeps falling it will lead to the Santa Claus rally. The S&P could rise as high as 5,000. He agrees.
$103.220
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The ARK funds have likely bottomed, on the basis that interest rates and inflation have peaked. Although, even if the fund has truly bottomed, it may trade sideways for longer than an investor can wait, and we would not expect the parabolic action that it saw in 2020 to occur anytime soon. The underlying companies in the fund are growing fast, but valuations are still on the high end, and we feel it will take a substantial shift in market sentiment to a 'risk-on' environment to see material gains in the name. With that said, we think the name can do well over a long timeframe, and we think investors will need to be patient here.
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