In the twelve months between the Covid crash bottom in March 2020 and February 2021, the ARK Innovation ETF returned 385%. Bold bets on disruptive and promising, yet still money-losing companies turned fund manager Cathie Wood into an investing superstar.
However, after the fund’s staggering surge from just $33 to nearly $160 a share, it was time for a break. It only took the bears three months to erase 39% of the fund’s market value. By mid-May 2021, the shares were changing hands at sub-$100 prices. Yesterday, ARKK closed barely below $120, up over 20% from its May low, but still down 25% from the record. What lies ahead is what we are interested, though.
ARK ‘s daily chart reveals what looks like an impulse pattern with a missing fifth wave. It is labeled 1-2-3-4 so far, where wave 2 is a sideways expanding flat correction, while wave 4 is a sharp drop. If this is the correct count, we can expect more strength and eventually a new record high in wave 5.
ARK Innovation Remains in an Uptrend… For Now
On the other hand, the completion of a five-wave impulse is never guaranteed. Sometimes, a three-wave rally is all the bulls can achieve, since technical patterns is not all there is in investing. Eventually, fundamentals and valuation also play a role. So, in order to increase the odds in favor of the bulls, we need to check the structure of the recent dip to $97.22.
And the structure of that decline is clearly corrective. It can be seen as a simple (a)-(b)-(c) zigzag correction, where wave (b) is a triangle. This means that the current recovery is most likely part of wave 5 up. It can be relied on to continue towards a new high near $170 or more.
However, Elliott Wave investors must not forget that every impulse is followed by a correction. Once wave 5 exceeds the top of wave 3, ARK Innovation ETF would have a complete five-wave impulse in place. A major three-wave retracement back down to $100 or lower should then be expected.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!