Beware the Deadly Bearish Wedge! Check out the chart of $ARKK (June 10, 2022)
ARKK SPY
I want to look at a bearish wedge pattern here. Let’s look at ARK ( NYSEARCA: ARKK ). I know that some of you guys are still worshiping at the altar of Cathie, and she’s the world’s most amazing stock picker in the world. We’ll see if you are still saying that when this stock is down 80 percent, which personally I would say it’s at least going to do that. That’s not what I am talking about here.
I am talking about this particular pattern and here’s why. When you see a stock within a downtrend and then it starts making higher highs and higher lows but it hasn’t broken the downtrend, it leads to a poor outcome, like water pouring out of a garden hose. You could kind of say the same thing here, where the highs and the lows are both higher but they are kind of converging.
The way that you can really watch for this pattern is, first, it has got to be in a downtrend, it’s got to be in a downtrend. And once it’s in a downtrend, you could have even looked back here and see the same kind of thing, it’s in a downtrend. From 130.00 down to 90.00, I would say that qualifies as a downtrend.
And so then it finds this support here and then it starts drifting up but it never breaks any moving averages, it is still in a bearish situation. Once this stock falls below you can see what happens. The same thing here, it didn’t challenge these moving averages. And then once it falls below you see it. We can do the same thing here, you can do the same thing here, I’m doing it right here.
The point is, right now we are in big, big bearish territory here for this stock. There are any number of other tech stocks that would give you the same patterns. The reason that I am pointing this out is this, this is not the bottom. But I want to distinguish something here, just because I am saying this is not the bottom, I am not even saying this stock is just going to continue to go lower and it’s going to implode, and this and that.
I think a better way for me to say it is, I just don’t think it’s a buying opportunity. Because you have got markdown phases and then after the markdown phases then you’ve got this period of accumulation where a stock is going to drift sideways for a while. I don’t want to be in the sideways drifting. I want to be in the next phase which is the markup phase, where the stock is done being accumulated. It’s done making a base and now it is moving up from there and this is not that stock, this is the other way around.
I will leave you with this, it’s something that I emphasized in our Strategy Session today, and that is, that the market always looks ahead. The market anticipated this crappy economy that we are in right now. The market is anticipating even a bigger crap in the economy. And so you can see the stocks are going down.
But at some point, even as the economy worsens, it gets worse and worse and worse, all of your kids are back living with you and they won’t do the dishes. It gets worse and worse and worse but the market doesn’t continue to go down. It kind of drifts sideways and then like lo and behold, you’re actually seeing some stocks move higher a little bit.
And you are going, what the heck is going on with this? What is happening is, that the market is seeing the end. And it is saying that the end is near. And when I say near, maybe the end is 6 months near or a year near. But the market is anticipating better times ahead.
So don’t just keep looking at the news flow, look at the tape. Look and see what the market is doing. Right now ( NYSEARCA: SPY ) the market is killing you. But there is going to come a time when it is not doing that anymore. So stay engaged, and don’t be losing all your dough. But stay engaged and you are going to wind up being in a great position.
In fact, I was just reading from one of our members who said, “Dan, this is how you saved me lots of cash in March of 2020. I had a record year in 2020 because I was 100 percent in cash and I pounced when it was safe. I appreciate you continually applying the same methodology.
And that is what we are doing, we are just applying the same old thing knowing that sometimes that methodology is going to make us a bunch of money. Other times that methodology is going to keep us out so that we avoid losing a bunch of money.
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