Cathie Wood’s leading ARK Innovation ETF is exhibiting increasing technical weakness that threatens to push shares lower. The fund, known for its disruptive growth stocks, is flashing multiple sell signals after a sharp slide from summer highs.
ARKK delivered incredible gains through much of the past two years as Wood’s pandemic picks like Zoom, Teladoc and Roku surged. But the ETF has stumbled hard since peaking in February 2021, giving back almost 75% of its value.
After showing some resiliency this year, ARKK is now facing its most ominous setup yet. The ETF hit a 52-week high in mid-July but has trended steadily lower since, carving out a series of lower highs and lower lows.
This price action forms a textbook downtrend, with each bounce failing at lower levels. ARKK just sank to its weakest point since May after rejecting its 200-day moving average as resistance.
Adding to the woes, the 50-day moving average has been bending lower in a negative slope. The ETF closed Tuesday a stark 11% below its 50-day line, a clear sell signal in technical analysis. ARKK is also nearing its 2021 low just above $35, presenting major support.
Bearish momentum is apparent across indicators. The relative strength line has plunged sharply since August, reflecting severe underperformance versus the S&P 500. The on-balance volume line is also heading decisively lower.
Plus, the Accumulation/Distribution Rating, which gauges institutional buying and selling activity, sits at a dismal D- for ARKK. The up/down volume ratio shows selling swamping buying to the tune of a 0.6 ratio over the past 50 days.
ARKK’s top components have crumbled in tandem. Major positions Tesla, Zoom, Roku, Coinbase and Block are all deeply in the red over the past month. The lone bright spot is Exact Sciences, maker of a colon cancer screening test, up over 30%.
But weak action in former stars like Tesla and Zoom is a big weight, compounding growing doubts over their long-term growth outlooks. ARKK’s 11% allocation to struggling Tesla looks increasingly problematic.
Of course, periods of underperformance are inevitable even among top growth managers. ARKK still shows a solid 21% gain in 2022 when many indexes remain negative. So this could prove just a dry spell for Wood’s strategy.
However, with the economy potentially rolling over, the prospects for unprofitable growth stocks look even more precarious. This environment may lead investors to shift focus towards more defensive small and micro caps as well as emerging growth names.
ARKK’s technically damaged chart highlights the perils of sticking with high-valuation names in a deteriorating macro climate. For now, it continues to exhibit a troubling technical breakdown as it retests the 2021 lows. Given the backdrop, its chart damage signals additional volatility is still ahead.
Cathie Wood forged a glowing reputation in 2020’s frenzied rebound but is undergoing a brutal reality check. With ARKK flashing multiple sell signals, the next leg lower could further test the resilience of Wood’s innovation approach.
For the Third Time This Year, Investors Get to Peak Behind the “Smart Money” Curtain
What’s smart money doing?
If retail investors weren’t always eager to know what hedge fund managers, corporate insiders, and others building positions in a stock have been doing, shows like CNBC’s Closing Bell, news sources like Investors Business Daily, and communities like Seeking Alpha would get far less attention. Next week, the most followed institutional investors are expected to make their quarter-end holdings public. This will usher in a lot of buzz around the surprise changes in holdings and even short positions in celebrity investor portfolios.
Popular SEC Filings
The most popular SEC filings from the supposed “smart money” that small investors look to for ideas are:
Form 13D – This is a filing that is required to be made by any person or group that acquires 5% or more of a company’s voting securities. The filing must disclose the person’s or group’s intentions with respect to the company, such as whether they plan to take control of the company or simply invest in it.
Investors may recall Elon Musk’s accumulation of Twitter shares was incorrectly filed on form 13-G which is for passive investors. He later had to amend his filing on 13D as his accumulation of shares was discovered to be predatory.
Form 4 – This is a filing that is required to be made by any officer, director, or 10% shareholder of a company when they buy or sell shares of the company’s stock. The filing must disclose the number of shares bought or sold, the price per share, and the date of the transaction.
This is the filing that the public used to discover that in 2021, Mark Zuckerberg sold Meta (META) shares (Facebook) almost daily for a total of $4.1 billion. The same year Jeff Bezos sold $8.8 billion worth of Amazon (AMZN) stock, mostly during the month of November.
Both of the filing types mentioned above are as needed, they don’t have a recurring season. However, another popular filing is form 13-F, these much anticipated filings occur four times each year.
Form 13F – This is a quarterly report that is required to be filed by institutional investment managers with at least $100 million in assets under management. The report discloses the manager’s equity and other public securities, including the number of shares held, the CUSIP number, and the market value.
Investors will pour over the quarter-end snapshot of the account and measure changes from the prior quarter, especially from investors like Warren Buffett, Bill Ackman, and Cathie Wood for insights. When Michael Burry filed his 13-F in mid May 2022, he had a position showing that he was short Apple (AAPL). Headlines erupted across news sources, and this certainly had an impact on the tech company’s stock price as other investors questioned its high valuation against any positions they may have had.
The Consistency of the 13-F
The SEC 13-F is a regular filing for large funds. Interested investors can generally mark their calendars for when a funds 13-F will be released. The SEC requires a quarterly report filed no later than 45 days from the calendar quarter’s ends. Most popular managers wait until the last minute, as they may not be so eager to share their funds positions any sooner than needed. This means that most 13-F filings are on February 15 (or before), May 15 (or before), August 15 (or before), and November 15 (or before). In 2023, August 15th is next Tuesday. During the second quarter of 2023 there seemed to have been significant sector rotation, and a reduction in short positions among large funds. This will make for above average interest.
Famous Investors that file a Form 13F
The legendary investor Warren Buffett is the CEO of Berkshire Hathaway. His company’s Form 13F filings are closely watched by investors around the world.
Warren Buffett, last filed a 13-F on May 15, 2023
Ray Dalio is the founder of Bridgewater Associates, one of the world’s largest hedge funds. His company’s Form 13F filings are also very popular with investors.
Ray Dalio, founder of Bridgewater Associates, last filed a 13-F on May 15, 2023
Michael Burry is the investor who famously bet against the housing market in the lead-up to the 2008 financial crisis. His company’s Form 13F filings are often seen as positions of a highly regarded contrarian.
Dr. Michael Burry, last filed a 13-F on May 15, 2023
Cathie Wood is the CEO of ARK Invest, a firm that invests in disruptive technologies. Her company’s Form 13F filings are often seen as a bellwether for the future of technology. Wood is always open and transparent about her funds holdings. This may explain why she is among the earliest filers after each quarter-end.
Cathie Wood, last filed a 13-F on July 10, 2023 for the second quarter ended June 31, 2023
Drawbacks to Using Form 13F
While Form 13F filings can be a valuable source of information for investors, it isn’t magic. And if it is going to weigh heavily as part of an investor’s selection process, some drawbacks should be considered.
The information is delayed: Form 13F filings are not real-time information. They are usually filed 45 days after the end of the quarter, so the information is already outdated by the time it is available to the public.
The information is not complete: Form 13F filings only disclose the top 10 holdings of each fund. This means that investors do not have a complete picture of the fund’s portfolio.
It is not always clear if a position is based on expectations for the one holding, or should be viewed in light of the full portfolio, balancing risk and potential reward. For example, an investment manager may be bullish on tech and long a tech megacap with a lower than average P/E ratio and as of the same filing, short a similar amount of a tech megacap with a higher P/E ratio. The fund manager may be bullish on both, and the nature of the positions may indicate an expectation that the P/E ratios are likely to move toward a similar ratio. If there is just a focus on one side (long or short), the investor may read the intentions or expectations wrong.
Take Away
As earnings season fades, the third week in August will provide a mountain of information on what institutional investors were doing during the second quarter. This is a great place to find ideas and understand any changes in flows.
Investors should be cautioned that this is only a June 30th snap shot, and these holdings may have changed days later.’
Are Balaji Srinivasan and Cathie Wood Right About the Future Value of Bitcoin?
The former Chief Technology Officer (CTO) of Coinbase, is either extremely bullish on Bitcoin, or has other reasons for his tweet that had set off a huge price jump in the cryptocurrency. Balaji Srinivasan is a very influential investor, especially in the tech space. He confirmed last Friday, belief in a bet he made in March that within 90 days, bitcoin would reach $1 million in value per token. At stake in the bet is $2 million. For crypto investors trying to understand the strong conviction going into the wager, they may first need to understand the person behind the tweet.
Who is Balaji Srinivasan
The Indian-born, U.S. raised, tech entrepreneur, investor, and academic has a Ph.D. in Electrical Engineering and an MS in Chemical Engineering from the Massachusetts Institute of Technology (MIT). Srinivasan co-founded a number of startups, including Earn.com which is blockchain payments platform, and the genomics company Counsyl. He has worked as a General Partner at a prominent Silicon Valley venture capital firm, and as the Chief Technology Officer at the crypto exchange, Coinbase.
Srinivasan has a large following as a commentator on the subject of technology and its social and political implications. Popular topics of his numerous articles and talks include the future of technology, the rise of decentralized systems, and the potential impact of emerging technologies on society. The tech guru has lectured at Stanford University and has served as an advisor to the FDA and the World Economic Forum.
Twitter: @balajis
What is Behind this Forecast?
In an ARK Invest podcast last Friday (April 6), Srinivasan explained bitcoin has good momentum and that he still believes it will reach $ 1 million within a three-month time horizon. He cited the concerns over the regional banking crisis that he believes will destabilize the dollar and cause the Fed to dump more dollars into the system. Fear and inflation in the coming months is the driver. Cathie Wood agreed with the direction and potential for bitcoin to hit $1 million, but her reasons were a bit different. She believes fear will be one driver, but reiterated her call for deflation. “We are very positive about Bitcoin as well. But your forecast was in the context of hyperinflation associated with fiat currencies. Our optimism is more of a function of fears of deflation and counter-party risk. Both of those should accrue to Bitcoin’s benefit,” Wood explained in her company’s podcast.
The bet and the likelihood that bitcoin-will-hit-$1-million-by-summer prediction seems on the surface to be highly improbable. It would take immense capital flows into the cryptocurrency and there is doubt the exchanges would be able to handle the migration of assets. Also, the question of what would prompt the run from traditional currency to cause a skyrocketing bitcoin, has still not been satisfactorily defined.
The one-hour and 17-minute podcast available at the link below under “Sources” is nonetheless thought provoking. These are two well-regarded tech analysts, standing behind something that sounds outlandish.
Another possible explanation for his outward conviction is that this isn’t a risky bet for Balaji. He’s presumed to own a considerable amount of bitcoin. The tick up on news of his bet (bitcoin is up near 25% since his tweet) could more than offset a $2 million loss on the wager. The timing of the value increase in BTC makes it appear that any loss could be self-funded by the attention it may have given the cryptocurrency.
Take Away
Bitcoin is higher than it had been when tech guru Balaji Srinivasan placed his public wager. However, at $28,500 it would still have to rise by $971,500. over the next few months. Supporting the idea that bitcoin is going up substantially, are two tech and disruption gurus whose thoughts are worth considering alongside your own observations.
Cathie Wood Reveals 2022’s Most Disruptive and Innovative Technologies
ARK Invest’s Cathie Wood penned a lookback-themed article about the innovations and disruptive companies of 2022. The purpose seemed to be to remind followers that although during the year, investors may have become disheartened with innovation, ‘look at the amazing opportunities that occurred.’ The innovations and companies highlighted were somewhat overlooked; following the path we are accustomed to from many breakthroughs, they fly under the radar. Then, suddenly they’re widely adopted. Below are many of her picks for innovation and companies she may now wish her funds held large positions in.
The Future of Internet
Suddenly everyone is talking about ChatGPT. According to Wood, artificial intelligence (AI), specifically, ChatGPT is advancing at a pace that is surprising even by standards set by earlier versions. This version of GPT-3, optimized for conversation, signed up one million users in just five days. By comparison, this onboarding of users is incredibly fast benchmarked against the original GPT-3, which took 24 months to reach the same level.
In 2022, TV advertising in the US underwent significant changes. Traditional, non-addressable, non-interactive TV ad spending dropped by 2% to $70 billion, according to Wood. Connected TV (CTV) ad spending on the same terms increased by 14% to ~$21 billion. Pure-play CTV operator Roku’s advertising platform revenue increased 15% year-over-year in the third quarter, the latest report available, while traditional TV scatter markets plummeted 38% year-over-year in the US. Roku maintained its position in the CTV market as the leading smart TV vendor in the US, accounting for 32% of the market.
Digital Wallets are replacing both credit cards and cash. In the category of offline commerce. They overtook cash as the top transaction method in 2020 and accounted for 50% of global online commerce volume in 2021. As an example of the growth, Square’s payment volume soared 193%, six times faster than the 30% increase in total retail spending 2019-2022 (relative to pre-COVID levels).
While overall e-commerce spending increased by 99% over the last three years, social commerce merchandise volume grew even faster. Shopify’s gross merchandise volume grew by 312%, almost four times faster than overall e-commerce and taking a significant share from other retail.
Underlying public blockchains continue to process transactions despite what may be going on surrounding the connected industries. Wood says it highlights that “their transparent, decentralized, and auditable ledgers could be a solution to the fraud and mismanagement associated with centralized, opaque institutions.” She explains, “After the FTX collapse, the share of trading volume on decentralized exchanges, which allow for trading without a central intermediary, rose 37% from 8.35% to 11.44%.
Genomic Revolution
Base editing and multiplexing have the potential to provide more effective CAR-T treatments for patients with otherwise incurable cancers. Cathie Wood provided an example from 2022 about a young girl in the UK with leukemia that went from hopeless in May to Canver-free in November.
In 2022 Dutch scientists at the Hubrecht Institute, UMC Utrecht, and the Oncode Institute used another form of gene editing called prime editing to correct the mutation that causes cystic fibrosis in human stem cells. Another example of how it is being adopted comes from Korean researchers at Yonsei University that used prime editing successfully to treat liver and eye diseases in adult mice.
CRISPR gene editing in Cathie’s words, “has delivered functional cures for beta-thalassemia and sickle cell disease.” She gives examples: CRISPR Therapeutics and Vertex Pharmaceuticals which together have treated more than 75 patients, resulting in some well-publicized “functional cures”. They are expecting FDA approval for Exa-Cel, the treatment for sickle cell and beta thalassemia, in early 2023.
In the category the Ark Invest founder referred to as other cell and gene therapies, she says in 2022, regulators approved several landmark cell and gene therapies. The examples she used to highlight this are Hemgenix for the treatment of Haemophilia B, Zyntelgo for beta thalassemia, Skysona for cerebral adrenoleukodystrophy, Yescarta and Breyanzi for Non-Hodgkin lymphoma, Tecartus for mantle cell lymphoma, and Carvykti and Abecma for multiple myeloma.
Liquid biopsies, blood tests via molecular diagnostic testing are enabling the early detection of colorectal cancer which, if discovered at or before stage 1, have a five-year survival rate greater than 90%. Late-stage or metastatic cancers account for more than 55% of deaths over a five-year period, but only 17% of new diagnoses.
Autonomous Technology & Robotics
During 2022 electric vehicle maker Tesla sales increased by 49% even as automobile sales declined by 8%. Tesla’s share of total auto sales in the US has increased to 3.8% from 1.4% in three years.
During 2022, GM expanded its autonomous driving taxi service to most of San Francisco in the first large-scale rollout in a major US city. Then it launched in both Phoenix and Austin late in the year. The automaker with a stodgy reputation, managed to compress the time to commercialization from nine years in San Francisco to just 90 days in Austin. Tesla, for its part, expanded access to its FSD (full self-driving) beta software to all owners in North America who had requested access.
By January 4, 2023, both Amazon and Walmart had begun deliveries using drones in select US cities. Autonomous logistics technology is no longer futuristic and is likely to continue being adopted and expanded.
Across the top 50 medical device companies, 90% rely on 3D printing for prototyping, testing, and even in some cases printing medical devices.
In 2022, SpaceX nearly doubled the number of rockets it launched to 61. It reused the same rocket in as few as 21 days, a dramatic improvement over the 356 days required for its first rocket reuse. Private Space Exploration is a reality. 61 rockets is an average of more than one per week.
Take Away
Hedge fund manager Cathie Wood took the new year as an opportunity to communicate examples of game-changing innovation that the equity market largely ignored in 2022. She finds these as confidence building that the premise of many of her managed funds is with merit. More importantly, in the face of market headwinds and media criticism, she wants these examples to help boost investor confidence “that ARK’s strategies are on the right side of change.” She tells readers, “innovation solves problems and has historically gained share during turbulent times.”
Ark Invest’s Cathie Wood Finds the Federal Reserve Quixotic
On Wall Street, staying with the herd guarantees average gains or losses. Wandering far from the herd adds two more possibilities. You may still have average performance, you may exceed the averages, or you may get slaughtered. ARK Invest’s Cathie Wood likes to explore her own field in which to graze, far from the herd. This preference shows in her funds performance. At times her returns have far exceeded competing hedge funds, and at other times they fall well below the pack.
In October of 2021, before Fed Chairman Powell changed his thinking that inflation may not be transitory, the renowned hedge fund manager, and market guru, Cathie Wood began sounding alarm bells about her fear of deflationary pressures. At the same time, she warned of job losses due to displacement as technology would reduce costs and the need for the current skill sets in the labor force.
For months renowned investor Cathie Wood has said that the Federal Reserve should stop raising interest rates, that the economy is seeing deflation rather than inflation, and that it is in a recession.
Even as others in the”transitory” camp have come more in line with the official position of the Fed on inflation, she has remained steadfast to her idea that new technology will solve supply issues. Supply is an important inflation input, and that innovation may oversupply to a point where the economy may struggle with falling prices.
This week she tweeted a few reasons for her forecast and shared her thoughts on Jerome Powell’s address at the Jackson Hole Economic Symposium.
Her view is that the Fed has overshot the target. Wood, who was already working on Wall Street during the high inflation 1970’s, tweeted her reasons for this belief. High on her list is the price of gold (expressed in dollars) which she says is one of the best inflation gauges. Gold, she tweeted, “peaked more than two years ago.”
She also reminded followers of the price movements of other commodities, all down. These include lumber’s price decrease of 60%, iron ore 60%, oil 35%, and copper 30%. Much closer to final consumer prices, she highlighted that retailers are flush with inventories that don’t match the selling season. They’re discounting to clear shelves which could result in a deflation print in one of the more popular inflation gauges.
The Fed chairman who last fought inflation with unblinking resolve is Paul Volcker. Ms. Wood reminded her Twitter followers that the inflation he was battling had been “brewing and building for 15 years.” In comparison, she said inflation under Jay Powell’s watch is only 15 months old and Covid-related. She thinks the current Fed Chair has gone too far, and “I wouldn’t be surprised to see a significant policy pivot over the next three to six months,” Wood said.
A Quixotic Fed?
Powell and his colleagues are looking at the wrong data, Wood tweeted. “The Fed is basing monetary policy decisions on backward indicators: employment and core inflation,” she tweeted. “Inflation is turning into deflation,” she said in another tweet.
Wood said, comparing the two Fed chairpersons, Powell invoked Volcker’s name four times in the Jackson Hole speech. Her tweets explained inflation was much higher in Volker’s era. “Until Volker took over [of the Fed] In 1979, 15 years after the start of the Vietnam War and the Great Society, did the Fed launch a decisive attack on inflation,” Wood detailed.
“Conversely, in the face of two-year supply-related inflationary shocks, Powell is using Volker’s sledgehammer and, I believe, is making a mistake.”
Take Away
Without different opinions and different investment holding periods, there would be no market. We’d all speculate on the same things, and they’d continue upward until the last dollar was invested.
Ark Invest’s flagship Arc Innovation ETF (arkk) has fallen 55% this year, more than double the fall-off of the indexes. When discussing current performance Wood has defended her strategy by reminding others that she has an investment horizon of five years. As of Sept. 7, Arc Innovation’s five-year annualized return was 5.81%.
Cathie Wood has continued an almost year-long campaign warning of deflation and saying the Federal Reserve should stop raising interest rates, and that the economy is in a recession. If she is right and has selected the investments that benefit from being correct, then those invested in her funds will be glad they placed some of their investment funds away from the herd.
