Things have been very interesting lately. Last week, the FED announced that it will speed up the tapering process and anticipates 3 rate hikes in 2022.
This *technically* should be bad news for risky high-growth stocks because it means that there will be less economic stimulus and higher interest rates going forward. Risk assets are hit hard in times of fear and are bid up in easy markets (like the easy 2020-2021 market conditions for the most part).
However, many risky growth stocks rallied on this FED news. So, what gives?
Well, all bad news was priced in before the FED announcement. When this happens, it can trigger a “sell the rumor, buy the news,” event which is exactly what happened. Growth stocks were on a downtrend for many months because people were expecting the news of less economic stimulus going forward. Once the news came, it became a worry of the past, and growth stocks rallied.
Things like this are fairly predictable, to be honest, as you can see below.
As you may know, stocks continued to rally that day.
When gauging risk assets in particular, you can take a look at the ARKK ETF. ARKK invests in many innovative high-growth stocks that are often highly valued as well. These are the type of stocks that people generally buy when there’s less fear in the market.
Here’s an ARKK chart below. On Wednesday (the FED announcement day), ARKK went from the low $90’s pre-announcement to the high $90’s by market open the next day. It then gave back all of its gains on Thursday, but on Friday, something interesting happened. A big bullish engulfing candle formed on high volume at a big support level. See below.
The support level goes back even further to last year if you look at it on the weekly timeframe.
This is essentially a continuation move of last Wednesday’s “negative” news. The high volume also adds extra bullish confirmation.
Since this happened on “bad” news, big volume, and at a support level after many months of drawdown, it’s likely that the $90-ish level will hold for ARKK.
We’re not actually long ARKK right now, we have other long positions, but we were SHORT before and we closed the short at around $93 in anticipation of this news. We don’t see a good short opportunity in it now as the downside is probably limited (we tweeted all of this a few days ago).
In fact, Cathie Wood recently said that due to the sell-off in her ETFs, the upside potential (as of Wednesday) for ARK ETFs was an estimated compound annual growth rate (CAGR) of 40% for the next 5 years. That turns $1,000 into $5,378 in 5 years; not bad…if it plays out.
So are we going to go long ARKK? Probably not, yet. Besides the fact that we don’t really like all of its holdings, it’s a bit of a tricky long since it’s still in a downtrend and there are resistance levels nearby. Things are looking promising for bulls as of right now, but we don’t normally buy into downtrends.
A few small positions in “risk” stocks wouldn’t hurt too much though if you are really eager to take advantage of suppressed prices.
Important Side Note: If somehow the $89-90 support level breaks down, there could be some serious downside ahead for ARKK. So, that’s definitely something to watch out for and something that we may short into if it happens.
So, What are Some Stocks to Watch?
Knowing that growth stocks possibly have relatively limited downside ahead, we can start to look for opportunities in that space. We can also look for up-trending stocks in general, even if they aren’t part of the “high-growth” category.
Here are a few stocks we have our eyes on.
1. Digital Turbine (APPS)
After triple bottoming near the $47 level, APPS looks it has potential. There is a pretty strong resistance level in the low $59’s that it has to get past first in order to start establishing an uptrend. We like the fundamentals and valuation of this company, but we won’t get too aggressive until it at least gets above that level, for now.
2. Invitae (NVTA)
Very nice relative strength here on some heavy volume. Resistance nearby around $18.50 but if it breaks above that, the next stop is $20.50 area.
3. Amazon (AMZN)
(Weekly timeframe) AMZN stock is tricky since it’s been flat for over a year. Around the current price though, it does offer a higher reward than risk, in our opinion. Key levels to watch underneath are ~3275 and ~3170. We probably wouldn’t want to buy those dips under those levels if they were to happen.
Lately, the 50 week MA (green line) has been a good spot to buy at. You could also wait for it to break the short-term diagonal resistance we drew, which is what we’re gonna look for.
4. Etsy, Inc. (ETSY)
(weekly timeframe) A dip to the 50 moving average which has supported the past few times. Looks promising so far. Took just a small position since it’s too early to tell if it bottomed out. Stop loss around $209 level. Good stock for the long term as well for those the investors out there. Check out our ETSY article here.
5. Meta Platforms (FB)
(weekly timeframe) As much as we love FB, especially at current valuations, it needs to break out of this diagonal resistance first before we consider a long swing trade position.
Any sort of weakness around the trendline area may actually be an opportunity to short with a tight stop loss. If it does show strength, a break above $354 could likely bring a retest of previous highs.
6. Moody's Corporation (MCO)
MCO is basing nicely here. A few more days/weeks hovering around here would be a great sign. The longer the base the bigger the breakout. Above $401 can trigger a break-out. Not interested if stock breaks below ~$378.
7. Ryan Specialty Group (RYAN)
Nice breakout on increasing volume. Stop-loss under recent wick low (under $38.36), first target previous highs of $41, second target $45.
8. CubeSmart (CUBE)
Another nice base here. Looking to either buy a breakout and retest (green arrow) or a dip that starts to base higher (yellow arrow). Target if it breaks out is $60, nothing too crazy here.
9. The Trade Desk (TTD)
Not something we’re buying yet, but it’s on the radar. Possibly if it breaks Thursday’s high of $92.70. Nice retest of support though, so far.
That’s mostly our watch list for now!
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