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Did ARKK Just Hit Bottom? Trading Growth Stocks in a Bear Market

The ARK Innovation Fund was a leader in 2020 and has been a major laggard in 2021. Did it just bottom? Let's look at the chart.

More and more lately, we can feel the growth-stock environment becoming less stable. Investors in this group are getting crushed from a painful bear market as the stocks are ruthlessly sold lower.

The bellwether for this group is the ARK Innovation Fund  (ARKK) - Get ARK Innovation ETF Report.

Cathie Wood has received a lot of recognition for the performance of her funds over the past year. However, the past few months have a lot of investors asking just how sustainable is that performance.

While ARK Invest recently launched a new space fund - the ARK Space Exploration & Innovation ETF  (ARKX) - Get ARK Space Exploration & Innovation ETF Report - the focus has remained on the flagship fund as it continues to wallow.

After closing at its lows on Monday, shares hit a new 2021 low on Tuesday, down 4.8% at the lows. At that low, the ETF was down about 38% from the highs. However, the ETF is now up 2.5% on the day after staging a strong reversal. 

Is the pain over? Has the fund bottomed? Let’s look at the chart.

Trading ARKK

Daily chart of ARKK stock.

Daily chart of ARKK stock.

We’re at an interesting point right here on the chart as the ETF attempts to reverse.

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ARKK stock came down hard from mid-February to the bottom in mid-March. Ultimately, the ETF bottomed at $106.27.

Amid the decline, the $130 level was support as first. Once it gave way though, this level was resistance on the rebound. ARRK stock also failed to reclaim the 50-day moving average. These are bearish developments that traders need to watch for. 

With the lack of upside momentum in place and with resistance holding firm, it didn’t take long for the ETF to break below the $106.27 low and other key moving averages.

Of course, it doesn’t help that Tesla  (TSLA) - Get Tesla Inc. Report is by far the largest holding in the ETF. With Tesla under pressure - and as we search for a low - it’s hard for ARK stock to bottom.

With Tuesday’s rally off the $100 area, bulls have hope. However, there are still hurdles in the way.

Specifically, the ETF is trying to reclaim the March low at $106.27, as well as the 50-week moving average. At this zone now, ARKK stock is at its first potential “make or break” area.

If it can’t reclaim this area, the current low at $98.89 remains vulnerable. If growth stocks remain under pressure going forward, the 21-month moving average remains in play in the $80s.

If it can reclaim the $106.27 level, then the 10-day and 200-day moving averages are in play next. Above that and the 50-day moving average will be on investors' radar.

This group has lost a lot of air, which presents opportunity. However, until a low is in place - and there might be now - investors need to be conscience of more potential losses.