Cathie Wood-Led ARKK Falls Under Key Bellwether, Reaches Oversold Territory: This ETF Offers A 200% Return On A Bounce

Cathie Wood-led ARKK Innovation ETF ARKK was popping up slightly higher on Wednesday but trading within an inside bar pattern to consolidate.

The ETF plunged 15% between Sept. 12 and Tuesday, losing support at the 200-day simple moving average (SMA) on Sept. 21, which threw ARKK into a possible bear cycle. The move lower came amid a selling spree, where the ETF sold 171,617 shares of Tesla, Inc TSLA between Sept. 19 and Sept. 21.

At least a temporary bounce is likely in the cards for ARKK, however, because the recent sharp downtrend has dropped the stock into oversold territory on the daily chart.

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Through trading TARK, investors benefit from upswings in ARKK, which holds stocks in industries such as electric vehicles, next-gen Internet, genomics and fintech. ARKK’s largest holdings are Tesla, weighted at 10.89%, Roku, Inc ROKU, weighted at 7.9% and Zoom Video Communications-A, which makes up 8.27% of the fund’s holdings.

It should be noted that leveraged funds are designed for short-term traders and shouldn’t be held for a long period of time.

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The ARKK Chart: ARKK started to consolidate sideways when its relative strength index (RSI) dropped below 30%. When a stock’s or ETF’s RSI falls under that area, it becomes oversold, which can be a buy signal for technical traders.

• On Wednesday, ARKK’s RSI was popping up to about 31%. If the RSI continues to climb upwards, it will indicate momentum is returning to the ETF, which sometimes precedes a longer-term uptick in share price.
• Bullish traders want to see ARKK’s RSI continue to increase and then for the ETF to regain the eight-day exponential moving average as support. If that happens, the ETF is likely to find more solid resistance at the 200-day SMA.
• If ARKK continues to trade mostly sideways on decreasing volume, the ETF may be settling into a bear flag pattern on the daily chart. If that plays out, bearish traders can watch for big bearish volume to come in and drop the ETF to new lows.
• ARKK has resistance above at $41.29 and at $43.83 and support below at $37.93 and at $34.97.

Read Next: Cathie Wood’s ARKK Sinks Nearly 8% On The Week- ETF Winners And Losers: Mid-Cap Returns

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