Even though the major indexes are still holding above initial support levels, there’s an underlying trend of high-beta stocks—traditionally the market leaders—taking a hit. Since mid-October, many high-flying stocks have seen corrections, particularly the ARK Innovation ETF (ARKK), which has dropped around 11.7% in the past month. This downturn indicates a broader risk-off sentiment in the market. It seems reasonable to expect that ARKK might continue to decline in the upcoming weeks. Recent indicators suggest a shift in momentum toward the downside, and we might find the weekly stochastics veering into oversold territory soon. The chart suggests a critical support level around $67, where both the February high and the 200-day moving average line up. Additionally, short-term risks appear evident as ARKK recently broke below cloud-based support in a newly bearish trigger. Current daily momentum, as indicated by the MACD, is notably negative, presenting no signs of relief just yet.
Interestingly, ARKK’s ratio to the S&P 500 saw an increase in September, reflecting a market buoyed by riskier assets. However, this ratio has since adjusted, pointing to a growing market aversion to risk. The performance drop has also impacted the 50-day moving average, which was last observed in late February. There’s potential for this ratio to gravitate toward additional support from the 200-day moving average, hinting at further downside pressure for ARKK in the short term.
In summary, the decline of ARKK appears emblematic of a broader market risk-off trend, and the situation may worsen in the near future. It might be wise to lessen exposure to volatile tech stocks, as they often suffer more during market corrections.
