ETF to bet against Cathie Woods ARKK- SARK

Sick of Innovation Stocks that are just hyped up based on concepts with no sight of profits?

There is now an ETF to short against the stocks in ARK Innovation Fund helmed by Cathie Woods.

As Buffet famously quoted:

“Only when the tide goes out do you discover who’s been swimming naked.”

With the easing of monetary policy and access to liquidity drying up, most of the innovation and concept stocks with no cash flow to speak of to sustain their business would be facing a liquidity crunch.

This has led to a huge sell-off- more than 30% to 40%- with Fed’s latest move to rein in on runaway inflation. Many of the innovation stocks have gone back to pre-pandemic levels such as Teladoc.

Source: moomoo app- Chart of ARKK as of 24th Jan 2021

The chart of ARKK looks bad and the next support level would be the 60 price level. There could be a bounce- likely a dead cat bounce- after such an extended fall.

The optimal level to consider taking a short trade which based on the charts provides a good risk-reward region will be around the 90 price level.

The Tuttle Capital Short Innovation ETF (SARK) shorts Ark Innovation using swap contracts and has jumped 56% since its Nov. 9 debut. So it would be a proxy for us to trade if we think there is more downside to these innovation stocks, it is known as the anti-ARKK fund.

Source: moomoo app- Chart of SARK as of 24th Jan 2021

So for those who are looking to trade using SARK to short the innovation stocks, we would think the optimal price level will be around the 40 price level to initiate a position. With the current backdrop of a tightening monetary policy, the odds of a huge surge in innovation stocks would be slim. 

However, as this is more of a trade rather than an investment, a stop below 35 would be advisable if our thesis did not pan out as planned.

 

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