ARKK ETF price slid 2.60%, breaching key support levels after the Big Short’s Scion Asset Management disclosed a huge bet against Cathie Wood’s firm. This could make for interesting viewing as one of the world’s most famous bears grapples with one of its biggest bulls.
ARK Innovation ETF (NYSE: ARKK) suffered a series of technical setbacks yesterday’s, closing below the 50,100 and 200-day moving averages and breaking down from a three-month uptrend. The selloff follows yesterday’s 13F filing deadline, detailing a significant bet against the firm by the man who called the top in 2007. The bearish options position, which is equivalent to 235,000 shares of the ETF. Furthermore, Scion increased its short exposure to Tesla, a major ARK holding. And because of this, Burry only needs to be right on one of those bets for them both to pay off.
Because of the symbiotic relationship between Tesla and ARK investment, their fates are linked. Let’s assume that Burry’s Tesla bet goes right, and the price collapses. This, in turn, forces the value of ARK’s holdings lower, putting pressure on the price and potentially causing redemptions. Redemptions would force ARK to sell holdings, including Tesla, starting the negative feedback loop over. The other side of the coin is that the ARKK ETF price drops, which then forces redemptions, which in turn force the ETF to liquidate
Of course, there is no guarantee to say that the good doctor has got this one right. However, his track record suggests he is worth paying attention to. Although the timing is everything, and one thing that filing doesn’t show us is the expiration date of the options contracts. Therefore we have no way of knowing if Michael thinks ARK is going lower tomorrow, next, week or sometime in the next few years.
But looking at the daily chart, we can see the ARK ETF price is starting to break down. Yesterday’s closing price of $116.98 is the lowest settlement this month and is almost 12% below Junes $132.50 high. Furthermore, it is beneath the support of an ascending trend line from May at $120.20. This technical breakdown should set the price on the path to July’s $113.27 low in the next day or so and potentially lower still. A logical target on an extension lower is the MAY low point at $99.50.
However, should the price reverse higher, closing back above the 200-day moving average at $122.26, it will have recovered all of the previous support levels, which are now acting as resistance. And if that happens, the bulls will be once again looking for May’s high.
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