Bitcoin – DeFi Dream Dead, Just Another Risk Asset: Man Institute

Bitcoin brought in the future wave when it debuted back in 2009. Although it took the world about ten years to notice its actual value, today, cryptocurrencies and blockchain technology are becoming a part of some major financial institutions across the globe.

Still, at the same time losing the core values it was built upon.

What Is Bitcoin Today?

The Man Institute explained that the rising correlation of the king coin with pre-established investment institutions leads to the cryptocurrency turning into just another “rate sensitive risk asset.” 

Bitcoin was created to allow people to control their own money and finance without being dependent upon the traditional financial system of banks.

And while that same dream led to the birth of multiple other similar assets, the present market conditions seem to be killing that dream.

Equities are usually the riskiest assets as their value is tied to distant cash flows. And up until 2019, the correlation between Bitcoin and the stock exchange NASDAQ was negative.

However, since then, this correlation has been rising. Standing at 0.51 at its peak in August 2020, the correlation came down significantly around March 2021 but shot back up soon. Right now, Bitcoin shares a correlation of 0.46 with NASDAQ. 

Bitcoin and NASDAQ correlation | Source: Man Institute

Similarly, its correlation with Bitcoin-based exchange-traded funds has also risen. In a way, ETFs are also subjected to the same treatment as equities, and thus a high correlation with it indicates that Bitcoin is changing entirely as an asset class.

Bitcoin and ETF correlation | Source: Man Institute

On the rising correlation, the report stated:

“This mirrors bitcoin’s journey along the Gartner hype cycle: from being an underground tech phenomenon, the flagship cryptocurrency is now a mainstream way for both institutional and retail investors to speculate. In our view, it is therefore unsurprising that it is becoming increasingly correlated with the very riskiest assets – equities (sic).”

Adding to the same, the Man Institute iterated:

“…the higher the correlations get, the more bitcoin seems to be another manifestation of a crucial facet of investing over the past decade: there is too much capital chasing too little genuine economic growth.”

How Is Bitcoin Today?

After five straight days of red candles, Bitcoin today looked somewhat green at press time. In the last few days, the king coin’s value has trickled down by over $6k (13.86%) to trade at $38,757.

The bearish crossover visible on the MACD that occurred three days ago is only gaining more strength as the bearishness continues to rise. This is not a good sign for Bitcoin since even the Parabolic SAR signals a downtrend.

Bitcoin price is down by 13% in 5 days – Source: FXEMPIRE

If the indicators turn right, BTC could witness further price fall.

Why Roku Stock Is Down By 28% Today

Roku Stock Dives After Earnings Report

Shares of Roku gained strong downside momentum after the company released its fourth-quarter results. Roku reported revenue of $865.3 million and GAAP earnings of $0.17 per share, missing analyst estimates on revenue and beating them on earnings.

The company reported that Active Accounts reached 60.1 million, up by 8.9 million from Q4 2020. Average Revenue Per User (ARPU) grew by 43% on a year-over-year basis.

In Q4 2021, player unit sales declined by 4% on a year-over-year basis, serving as a significant bearish catalyst for Roku stock. In addition, the company’s guidance disappointed analysts. In Q1 2022, Roku expects to report revenue of $720 million and adjusted EBITDA of $55 million.

The company also noted that ongoing supply chain disruptions would continue to impact the economy and that overall TV unit sales would likely remain below pre-pandemic levels, which could have an impact on the active account growth.

What’s Next For Roku Stock?

Analysts expect that Roku will report earnings of $1.63 per share in 2022, so the stock is trading at more than 60 forward P/E for this year despite the massive pullback.

In the current market environment, traders are very sensitive to any negative news from growth companies. In Roku’s case, there’s too much bad news in one report. Player unit sales declined on a year-over-year basis, revenue missed estimates while Q1 2022 guidance was below analyst expectations. A combination of these negative factors led to massive pressure on Roku stock.

It should be noted that Roku stock has already lost almost 80% of its value from the highs that were reached back in mid-2021. However, the company is still not cheap at a time when the market is ready to punish high-PE stocks for any shortcomings.

In case the broad market pullback continues, Roku stock may gain additional downside momentum and settle below the psychologically important $100 level. Traders should also watch the dynamics of ARK Innovation ETF, which has recently moved to new lows. A panic sell-off in ARKK will signal that its holdings like Roku have more room to fall.

For a look at all of today’s economic events, check out our economic calendar.

Best Oversold Growth ETFs to Buy Now

Big Money has been selling a lot recently, causing losses almost market-wide (energy being the only survivor). Fears over inflation and the Federal Reserve raising interest rates, among other worries, have spooked investors. Going to MAPsignals.com, we can scan Big Money ETF buys and sells. Recent big selling, indicated by the deep red lines in the chart below, can help explain the market drawdown:

Source: www.mapsignals.com

When markets move like this, the hysteria can entrap great assets and cause them to be sold off. To identify those “unfairly hit,” long-term investors need to look for ETFs (and their stocks) with great setups.

Remember: ETFs are just baskets of stocks, so we need to look at them in detail. MAPsignals specializes in scoring more than 6,500 stocks daily. If I know which stocks compose the ETFs, I can apply stock scores to the ETFs. Then I can rank them all from strongest to weakest.

Let’s get to the five best oversold growth ETFs to buy now.

#1 iShares Expanded Tech-Software Sector ETF (IGV)

This ETF has been getting hammered since about mid-November of last year. Below are the buys and sells for the fund according to the Big Money process:

IGV holds several solid stocks; one example is its largest holding, Microsoft Corporation (MSFT). Here are the times MSFT was a high-ranking Big Money buy signal since 2016:

#2 First Trust Dow Jones Internet Index Fund (FDN)

FDN holds some of the biggest, most successful stocks out there. These are names we’ve all heard of and know well. Their ability to bounce back is appealing, as is the growth of FDN:

One great stock FDN holds is Amazon.com, Inc. (AMZN). It’s a long-time Big Money favorite with awesome fundamentals. As the multi-year chart below shows, it’s been a monster stock for a while:

Chart, histogram Description automatically generated

#3 First Trust Cloud Computing ETF (SKYY)

Big Money started buying this ETF focused on cloud computing back in 2020, and no wonder because it holds tremendous stocks. Given its quality, I think this could be a great opportunity to get a solid growth ETF at a discount price:

One of the biggest holdings within SKYY is Arista Networks, Inc. (ANET). It’s an outlier stock that Big Money has liked for years:

#4 iShares Russell 2000 Growth ETF (IWO)

While it’s been a weaker-performing ETF of late, IWO still holds stocks with strong growth prospects. IWO has been sold hard, but this could be an opportunity:

One company within this ETF on a pullback that could flourish is Synaptics Incorporated (SYNA). Big Money loved it for years. The multi-year chart shows a lot of blue signals years ago:

#5 ARK Innovation ETF (ARKK)

While it has fallen significantly, ARKK holds innovative companies that could overturn the business world. So, it could be a potential scoop down here.

One great stock in ARKK is Tesla Inc. (TSLA). It’s held up relatively well during the growth pullback and has a phenomenal long-term trend. Big Money has loved TSLA for a long time:

Fair or not, all these ETFs have been hit hard this year due to their growth-oriented focus. But that doesn’t change the fact they hold great stocks that could rise in the future.

The Bottom Line

IGV, FDN, SKYY, IWO, and ARKK are my best oversold growth ETFs to buy now. These picks are poised to do well going forward, in my opinion, largely because they each hold great stocks. They may be experiencing selling pressure, but on quality assets, deep red days often prove to be fire sales over time.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds no positions in IGV, FDN, SKYY, IWO, ARKK, MSFT, AMZN, ANET, SYNA, or TSLA in managed or personal accounts at the time of publication.

Investment Research Disclaimer

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Why Roku Stock Is Up By 6% Today

Roku Stock Gains Ground After Company Announces New Animation Series

Shares of Roku gained strong upside momentum after the company announced its first adult animated scripted series.

The stock also enjoyed a boost as traders rushed to buy shares of tech companies after the recent sell-off.

Some bottom-picking is clearly in play here as Roku stock declined from the $490 level in July 2021 to the recent bottom near the $160 level.

ARK Innovation ETF, which holds a significant position in Roku, is also enjoying a rebound today as traders look ready to buy beaten tech stocks after a long pullback.

What’s Next For Roku Stock?

It looks that the announcement about the new animated series was not the main catalyst for Roku stock today.

Roku shares were oversold, and traders were ready to buy them when the general market sentiment towards tech stocks improved.

While a 6% move looks good, it’s just a blip on the chart as Roku stock is down by roughly 65% from its highs.

Analysts expect that Roku will report earnings of $1.65 per share in 2022, so the stock is trading at more than 100 forward P/E despite the huge pullback.

In this light, Roku’s near-term fate will depend on whether the market will be ready to support high-PE stocks. Analysts do not expect a significant increase in Roku’s earnings from 2021 to 2022 (estimated EPS for 2021 is $1.58), and it remains to be seen whether current valuation is justified by modest growth levels.

Of course, the market is always ready to look beyond the next year when it looks at a tech stock, but the continued increase in Treasury yields and the upcoming Fed moves on rates may force market players to be more conservative, which will be bearish for Roku.

For a look at all of today’s economic events, check out our economic calendar.

Tech Tanks as Investors Rue the End of the Liquidity Punchbowl

Written on 11/01/2022 by Lukman Otunuga, Senior Research Analyst at FXTM

The tech-focused Nasdaq Composite has shed close to 7% already this year, the worst annual debut since fears of a slowdown in China sent shockwaves across global financial markets six year ago.

It is the sharp rise in bond yields that has grabbed every investor’s attention and a potentially more hawkish US Federal Reserve who the market now thinks will raise rates at its March meeting and three more times across the new year in order to tame hot inflation. In turn, sector rotation out of tech stocks and into value sectors has been the name of the game, though a more severe selloff across all sectors can’t be ruled as the liquidity taps run dry. It seems that the fabled punchbowl of endless central bank stimulus really is going to be taken away, and much sooner than many have previously thought.

The prospect of higher rates lowers the appeal of the tech sector as high growth stocks are particularly sensitive to policy tightening that crimps future earnings potential, in turn knocking the sector’s high valuations. Big cash flows far into the future are worth relatively less when rates rise, so growth stocks and especially more speculative areas of the market which carry high expectations for distant cash flows, get hit harder.

The S&P500 Information Technology index, made up of the some of the biggest names in Silicon Valley, has fallen nearly 7% already this year, while recent initial public offerings are down nearly 12%, according to indices collated by top investment bank, Goldman Sachs. The flagship “Ark” fund run by once market darling Cathie Wood has been caught in the epicentre of the tech selling. It has dropped around half its value, a fall worse than the one the fund saw in March 2020 during the low of the pandemic.

As yields have risen, those previously unloved value stocks more linked to the reopening phase have been bought into, as investors shunned high-growth companies that were all the rage at the height of the crisis. Shares of banks, energy stocks and major industrial groups – those set to benefit with the opening up of the US economy – have taken off. The S&P bank index hit a record high yesterday and value stocks as a whole even managed to eke out a gain last week while the broader all closed in the red for the year.

The bumpy ride may continue as focus is fully on the Fed, with its recent hawkish minutes pushing markets into pricing a material chance of a rate hike this month. Perhaps Fed Chair Powell’s Senate testimony, as part of his re-nomination process, could douse the hawkish atmosphere and heal some of the carnage in the more speculative parts of the market if he said that policy adjustment might be more gradual. Then again, Wednesday’s US CPI is expected to hit near 40-year highs and potentially add to expectations of an imminent Fed lift-off.

For more information, please visit: FXTM

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Why ARK Innovation ETF Is Down By 5% Today

ARK Innovation ETF Drops Amid Sell-Off In Growth Stocks

ARK Innovation ETF found itself under strong pressure today as traders rushed out of riskier assets on fears that Fed will raise rates aggressively in 2022.

The market begins to price in as much as 4 rate hikes this year. Treasury yields are rising fast, and S&P 500 has already pulled back by about 5% from highs that were reached at the beginning of this year.

Stocks with high price-to-earnings ratios are losing ground fast, and ARK Innovation ETF’s holdings are concentrated in such stocks. The biggest ARKK holding, Tesla, is trading at more than 110 forward P/E. Roku is valued at more than 100 forward P/E while Teladoc is not profitable.

Other big holdings like Block, Zoom, Shopify and Spotify are also richly valued, and there is a lot of potential for multiple compression.

What’s Next For ARK Innovation ETF?

ARKK has found itself in a challenging position as the stocks in the fund’s portfolio are all under pressure. There is no real diversification as they all belong to the same market segment, which is currently moving lower.

Traders should focus on the fate of Tesla, which is the bright spot in ARKK portfolio. In case Tesla begins to fall at a faster pace compared to its normal volatility, a true panic may emerge in ARKK.

It should be noted that ARKK biggest holdings remain very expensive by traditional metrics even after the huge pullback. Thus, if the market stays focused on valuation concerns due to rising rates, these holdings will have plenty of room for additional downside.

Tesla is holding reasonably well because Tesla’s growth story is very strong, but other stocks do not have such powerful stories which can offset current market concerns.

To have upside, ARKK needs a change of market sentiment, which will likely depend on Fed’s comments and the trajectory of Treasury yields. If current trends persist or Fed becomes even more hawkish, ARKK will remain under material pressure.

For a look at all of today’s economic events, check out our economic calendar.

Why Roku Stock Is Down By 7% Today

Roku Stock Falls As General Manager Of Platform Businesses Announces His Departure

Shares of Roku gained downside momentum and moved to multi-month lows after the company announced that Scott Rosenberg, who served as Senior Vice President and General Manager of Platform Business, would step down in the spring of 2022. Rosenberg joined Roku back in 2012.

Such news are often viewed as a material downside catalyst when the stock is already in a downside trend. In Roku’s case, the shares have moved from the $474 level in July 2021 to the $180 level as traders questioned whether the company’s valuation was justified.

Back in December 2021, the stock made an attempt to gain upside momentum after the company reached a deal with Google to keep YouTube and YouTube TV apps on Roku, but this positive development failed to serve as a longer-term upside catalyst for company’s shares.

What’s Next For Roku Stock?

While Roku stock declined by more than 60% from the highs that were reached back in July, valuation remains a concern. Analysts expect that Roku will report earnings of $1.67 per share in 2022, so the stock is trading at roughly 108 forward P/E despite the huge pullback.

The Fed is about to raise rates while Treasury yields are already moving higher, which is a challenging environment for high-PE stocks. Not surprisingly, tech leaders have been under material pressure in recent trading sessions.

There is another thing to consider when looking at Roku stock. Roku is the second-largest holding of Cathie Wood’s ARK Innovation ETF, which has been moving lower at a fast pace in recent months.

Back in 2020 – early 2021, the sole fact that ARKK owned a share in the company used to serve as an upside catalyst. In early 2022, the reverse may be true, especially in case the fund’s main investment, Tesla, has any problems.

At this point, Roku remains a risky investment as the company remains richly valued in an environment where traders start to pay attention to valuation.

For a look at all of today’s economic events, check out our economic calendar.

Value Investing Has the Upper-Hand but ARKK’s Holdings Have Profitability Potential

First, contrarily to what some believe, Cathie Wood’s ARK Innovation ETF’s (ARKK) woes started before the rotation away from the tech sector which has been underway since the first week of December, with the momentum being somewhat perturbed by the Santa Claus rally. As shown in the chart below, the innovation ETF started to underperform Berkshire Hathaway (BRK.B) from mid-February of 2021. I selected Berkshire as it represents the epitome of value or focusing on the profitability metric, whereas Cathie Wood is perceived as prioritizing disruptive “growth at all costs”.

https://static.seekingalpha.com/uploads/2022/1/7/49663886-16415565743224356.png

Source: ycharts.com

Next, looking at the reasons for ARKK’s underperformance, nearly two-third (36 out of the 56 stocks) in the flagship innovation fund did not generate any profit in 2020 and the year before. This did not matter much in the era of low-interest rates and cheap money, but with the economic recovery being on track and jobless numbers falling according to expectations, the probability of the U.S. Fed incrementing interest rates moving higher as from the first quarter of 2021. This brought the profitability metric to the fore.

Thus, ARK’s reliance on a mixture of imagination and discounted cash flow models based on near-zero interest rates to justify the high valuations of its holdings was put into question, even with their great potential and capacity to lead their respective industries.

Still, Cathie Wood is far from being a speculator and some of the stocks in her portfolio have delivered impressive growth, as part of the digital transformation secular trend accelerated to some extent by Covid in 2020.

Looking at ARKK’s holdings’ capacity to generate operational profits, I start by analyzing their gross margins, which provides an indication of the efficiency of their platforms or production systems at delivering services. As shown in the chart below, gross margins have either been maintained or even increased despite inflation increasing in the U.S. throughout 2021.

https://static.seekingalpha.com/uploads/2022/1/7/49663886-164155657435072.png

Source: ycharts.com

To further make my point, I take the example of Unity Software (U) which delivered an operating profit margin of -44.3% in Q3-2021 or operates at a loss. On the other hand, its gross margins, at 77.82% are even higher than mighty Microsoft’s (MSFT) 68.9%. This means that, with some “innovative” adjustments in its R&D and sales expenses, Unity can change its operating loss status. For this matter, Tesla which is the fund’s top holdings turned to profits in the second quarter.

Trying to get some insights as to a possible change in ARKK’s strategy which consists of concentrating on innovators and disruptors of the future, I came across an interview of Cathie Wood by Bloomberg TV dated December 10. Here, I noted that she is not selling the stocks in ARK’s holdings, even if other fund managers are doing so in the name of diversification and portfolio concentration risks reduction. She also re-iterated her five years’ time horizon, with projections for an annual return rate of 40%, up from 15% in February, based on work by ARK’s research team.

My take is that ARK’s founder and CEO’s current strategy is having market participants stop and scratch their heads, while investors continue to dump shares of the innovation ETF, now as part of the wider tech selling momentum. Thus, it should further drop before bottoming. Furthermore, given that ARKK has a focus on long-term growth, short-term profitability remains in the rear, but its main holdings’ relatively high gross margins show potential, either to switch to profits or increase profitability.

Finally, this is a fund that has already delivered above-45% five-year returns. Consequently, the longer-term potential is there and a small cautious buy at around the $80-82 range makes sense.

Deleveraging COVID Bubble – Possible Volatility Risks In Foreign Markets

I get asked all the time what my opinions are regarding the markets. As much as I could go into really deep details regarding technical analysis and other factors of my research, the simple answer is that we’ve been living through 2~4+ years of incredible market trends and unprecedented global central bank efforts to support and contain market risks. This is something we have not seen at these levels since the end of WWII and after the Great Depression.

Is there a Speculative Bubble Deleveraging Risk In The Global Markets?

The one thing that keeps popping up in my mind is the deleveraging of credit/debt and speculative risk assets over the next 2 to 3+ years. Let me explain what I mean by this statement.

Before the first COVID event (February 2020), the global markets were already within a moderate strengthening phase with relatively stable global trade, economic, and central bank participation. Everyone was still waiting for inflation to rise while employment and economic data continued to strengthen. When COVID hit, things changed very quickly.

  • Global lockdowns disrupted the labor and supply markets.
  • Consumers shifted gears while settling (or moving) into more rural locations attempting to wait out the new COVID threat.
  • Global central banks and governments attempted to navigate the catastrophic COVID event while settling population and finance issues.
  • An unprecedented amount of stimulus, global central bank financing, and speculative capital was unleashed over a very short 3 to 4-year span of time.
  • The success of the global economy prior to 2020 prompted a very deep and efficient speculative market trend in 2020 and beyond.
  • Now, that speculative bubble appears to be bursting – at least in certain areas of the markets.

Let’s explore a bit of data and charts.

This first Monthly chart highlights trends in various global market indexes. ARKK, the ARK Innovation Fund, HSI, the Hang Seng Index, DAX, the DAX Index, SPY, the S&P 500 ETF, and HXC, the Golden Dragon China Index. Each of these represents a unique component of global markets and sectors.

ARKK represents technology, innovation, and a more broad global investment style focused on stronger or more highly volatile price trends.

HSI represents a broad market China Index that includes various markets sectors – including Technology, Medical, Consumer, Real Estate, Finance, and others. These companies are listed in China and do a majority of their business in China.

DAX represents a broad market German Index.

SPY represents a broad market US Index

HXC represents the US-listed Chinese Companies doing a majority of their business in China.

The purpose of showing you this chart is to highlight the deleveraging that is already taking place in ARKK, HXC, and the HSI. The DAX and the SPY are still trending higher, while the ARKK, HSI, and HXC are trending strongly to the downside.

Chart, histogram

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It is my opinion that the global markets, particularly China/Asia, are already in the midst of a massive speculative deleveraging event – a post-bubble rally phase initial collapse process. Certain technicians sometimes call this an “unwinding” or “unraveling” event. Ultimately, the US has seen two of these types of events over the past 30 years – the 1999-2000 DOT COM bubble burst and the 2008-09 Housing Market collapse.

What I found interesting is the HXC price levels have already fallen to levels near the March 2020 COVID lows. Whereas the HSI price levels have also fallen to very near the March 2020 COVID lows, it has also fallen into negative price trending from 2014-15 price levels.

Could Speculative Deleveraging Stay Localized This Time?

I think global volatility and bigger price trends will be something we need to prepare for in 2022 and 2023 – possibly even longer. Yet, my opinion is the US, and other stronger global economies may be partially immune from this speculative deleveraging event.

Why?

Because not every US corporation or citizen has put themselves in a similar scenario as I believe many in China and Asia possibly have after nearly 30+ years of extreme growth trends.

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The US has experienced the 1999-2000 DOT COM bubble and the 2008-09 Housing Market crisis over the past 30 years. At the same time, China/Asia has grown from moderate obscurity in the 1980s-1990s into extensively powerful economies. Along the way, over a relatively short period of time, a generation or two of the populous has seen assets rise thousands of percent over the past 20 years. This leads to a highly speculative investment class – almost feeling as though anything they touch turns to gold.

But it doesn’t always work out that way – does it?

This HXC chart highlights the incredible rally after the February 2020 COVID event as well as the moderate growth phase from 2005 to 2016. Notice the big growth that took place in 2017. This was a period of very strong economic growth where Chinese companies started listing on US exchanges to tap into a strong US investor class.

After COVID hit in 2020, this speculative investing trend skyrockets over 180%. Then, it collapsed.

Chart, histogram

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Bitcoin May Follow This Deleveraging Trend If Panic Sets In

The recent rally and peak in Bitcoin have also caught my interest in seeing if this deleveraging event follows through in large Cryptos? Since the initial Bitcoin collapse in early 2021, Bitcoin has rallied strongly as the US markets recovered and inflation started to rise later in 2021. Now, a very strong pullback in Bitcoin has started at the same time large Chinese Real Estate developers and other corporations are beginning to experience severe credit/debt concerns.

Is there a correlation between Chinese/Asian consumer/economic strength and Bitcoin? Has the rise in Bitcoin prices over the past since 2015 been fueled by the rising speculative and investment trends in China/Asia?

We’ll know soon enough.

Chart, histogram

Description automatically generated

If the global markets continue this process of speculative trading deleveraging, we’re going to see an increase in volatility and deeper price trends take place before the process completes. I suspect there is a huge amount of underlying credit/debt that is struggling in certain areas of the world right now. This type of speculation tends to drive a mentality of FOMO (fear of missing out) and YOLO (you only live once). I remember after the DOT COM bubble burst, I would talk to people that were so entrenched in the bubble, and they bought all the way through the collapse – believing it would bounce back.

This deleveraging event should stay somewhat immune from certain larger market economies. Yes, there will likely be more volatility and bigger price swings. But, eventually, the strength of consumers and economic trends will settle most of this process fairly quickly for the largest global economies.

2022 and 2023 are sure to be great years for traders. Sectors will rotate and trend. The world’s strongest economies will rotate and trend. The increased volatility will create risks, but it will also create incredible opportunities for profits.

Get ready; it looks like this deleveraging event is just getting started.

Want to learn more about deleveraging and volatility risks in the markets?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

For a look at all of today’s economic events, check out our economic calendar.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Stocks Move Higher As Traders Stays Optimistic Despite Recent Sell-Offs

Stocks Gain Ground At The Start Of The Week

S&P 500 futures are gaining ground in premarket trading as traders look ready to buy stocks after Friday’s sell-off.

Recent trading sessions have been volatile, as some traders sold equities on fears over the new variant of coronavirus while others were willing to buy stocks at discount.

It should be noted that Nasdaq futures are losing ground in premarket trading as the sell-off in the tech space continues. The market is not ready to tolerate sky-high valution levels in case companies do not show strong growth. Broader bullish bets on the high-growth market segment like ARK Innovation ETF have been under significant pressure in recent weeks.

The weakness in the tech space may have a material impact on S&P 500 as leading tech stocks have a significant weight in the index. In premarket trading, Apple stock is moving higher while Tesla stock is down by about 2%. Alphabet, Microsoft, Meta Platforms and Amazon are mostly flat.

WTI Oil Moves Higher As Saudi Arabia Raises Prices For Asian Customers

WTI oil continued its attempts to settle above $68.50 after reports indicated that Saudi Arabia increased prices for Asian customers by up to $0.80.

Recent reports from South Africa suggested that Omicron cases were not severe, and it looks that the panic over the new variant of coronavirus calms down. However, oil markets will likely remain sensitive to any news about Omicron and its potential impact on oil demand in the upcoming weeks.

Not surprisingly, the upside move in the oil markets provided support to oil-related stocks, which look ready to gain ground at the start of today’s trading session.

Gold Tries To Settle Above $1775

Gold managed to get back above the $1775 level and is trying to develop additional upside momentum despite higher Treasury yields and strong dollar.

It looks that the recent sell-off in crypto markets, which pushed Bitcoin below the $50,000 level, provided support to gold.

Meanwhile, gold mining stocks will likely find themselves under pressure at the start of today’s trading session as investors remain cautious towards this market segment.

For a look at all of today’s economic events, check out our economic calendar.

ARK Innovation ETF Dips Amid Tech and Crypto Market Selloff

Cathie Woods heads Ark Invest, and she has become popular for picking stocks that are out of the ordinary. Her asset management firm also invests in cryptocurrencies as she is bullish on BTC and other cryptos.

Market Selloff Affects Ark Innovation ETF

The shares of Ark Innovation ETF dipped by more than 5% during Friday’s trading session due to the massive selloff within the tech and cryptocurrency markets. Investors sold high-growth, high-valuation stocks that rallied during the early stages of the pandemic following bets that the US Federal Reserve will be more aggressive moving forward.

ARKK suffered huge losses as nine out of the top ten of its holdings experienced a massive selloff. Tesla Inc., ARKK’s largest holding, lost more than 4% of its value yesterday, while Teladoc Health Inc., its second-largest holding, dropped 5.2%.

ARKK performed excellently over the past 20 months as the fund invested mostly in stay-at-home stocks. With the pandemic raging on for months, ARKK was one of the best-performing funds in the world during that period.

ARKK Suffers Huge Losses in Recent Weeks

Cathie Wood’s Ark Innovation ETF has suffered huge losses in recent weeks, down by more than 25% over the past month. The decline comes after the US recorded 210,000 jobs in November, pushing the unemployment rate to a 21-month low of 4.2%. The increasing employment rate spells danger for stay-at-home stocks, and that ultimately affects ARKK’s portfolio.

The decline in the cryptocurrency market also contributed to ARKK’s poor performance. ARKK invests in Bitcoin ETF’s in Canada and other cryptocurrency-focused exchange-traded funds. As a result, the dip experienced in the crypto market affected its performance.

Year-to-date, ARKK’s value has dipped by nearly 25%, making it one of the worst performers in the market. The ETF’s value could dip further if the current market momentum is maintained.

Chinese Crackdown on Bitcoin Another Blow to Cathie Wood’s ARK ETF

Wood, who has said that bitcoin will rally to $500,000, has slightly more than $1 billion invested in cryptocurrency trading firm Coinbase Global Inc, a position that makes up approximately 4.7% of her $21.7 billion fund. Shares of Coinbase fell more than 1.5% on Friday after Chinese regulators announced a blanket ban on all crypto transactions and mining.

China’s move triggered a selloff in bitcoin, taking the value of the world’s largest cryptocurrency down more than 5% to approximately $42,475.

ARK Innovation was down 1.4% in midday trading on Friday.

The declines come as several of Wood’s top holdings this year are floundering during a market rally that has pushed up the benchmark S&P 500 more than 18% for the year to date.

While shares of Tesla Inc, Wood’s top holding, are up 8% for the year, large positions in companies including Teladoc Health Inc and Zoom Video Communications Inc are down 20% or more over the same time amid a shift away from the stay-at-home technology stocks that dominated during the COVID-19 lockdowns of 2020.

ARK Invest did not respond to a request for comment on this story.

Overall, the ARK Innovation Fund is down 4.4% for the year to date, putting it in the bottom 100th percentile among the 595 other U.S. mid-cap growth funds, according to Morningstar.

Over the last five years, however, the fund is up an annualized 42.3% a year, placing it among the top 1 percentile in its category.

That strong long-term performance is likely what is keeping retail investors from selling their stake in the fund this year despite its poor showing, said Todd Rosenbluth, director of fund research at CFRA.

“ARKK is down for the year and has significantly lagged behind index-based growth ETFs yet most investors have remained loyal, likely due to fond memories of prior periods of relatively strong performance,” he said. “But as the recent period of underperformance persists it is harder to justify not considering alternatives.”

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(Reporting by David Randall in New York; Additional reporting by Saqib Iqbal Ahmed in New York; Editing by Ira Iosebashvili and Matthew Lewis)