According to the chart, Cathie Wood’s ARK Innovation ETF is ready to break out of sideways trading
Investors appear ambivalent about Cathie Wood’s popular ARK Innovation ETF (ARKK), which is in the midst of tight consolidation in an apparent tug-of-war between buyers and sellers. From a technical perspective, we believe demand will eventually overwhelm supply for the ETF, allowing ARKK to exit the consolidation phase that has been delayed for several weeks. Short-term momentum is best described as neutral, but medium-term momentum is improving and ARKK has an oversold bullish bias in the short term facilitating a breakout from the triangle consolidation pattern. This would occur above $46 with positive short-term catalysts, although two consecutive closes above the 50-day moving average would also suggest improved short-term momentum. The consolidation period at ARKK follows notable underperformance versus the S&P 500 in the first half of 2024. We expect relative strength to improve if the consolidation period is resolved on the way up, note that the beleaguered software sector is one of the biggest contributors to underperformance and that its components generally look better on the chart as they react to conditions. Oversold conditions in the medium term. ARKK itself has a promising rise in the weekly stochastic index, tied to a recovery in software stocks. This suggests the path of least resistance is higher, especially with key support nearby in the weekly cloud pattern. By definition, “support” is where there is potential buying pressure, so this is a natural place for ARKK to find a foothold after a downturn. For ARKK long positions, we would look to manage risk through stop-loss discipline, reducing risk in case the consolidation phase resolves the decline below $42. On the downside, the first major resistance is near $54, but we will reassess the momentum gauges near the psychologically meaningful $50 level. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here. DISCLOSURE: (None) All opinions expressed by CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent company or its affiliates. their affiliates and may have been previously disseminated by them on television, radio, the internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT RELATE TO FINANCIAL, INVESTMENT, TAX OR LEGAL OR A RECOMMENDATION TO PURCHASE ANY SECURITIES OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL AND DOES NOT RESPONSE TO ANY INDIVIDUAL’S UNIQUE CIRCUMSTANCES. THE ABOVE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. 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