ARKK Clarification and Update

After reading the comments in yesterday's ARKK post I realized that I needed to clarify the post, particularly in light of what, in retrospect, was an overly enthusiastic title.

I had hoped to call attention to the anatomy of an important price behavior that is important across a wide variety of assets and time frames. I also intended to highlight how I use charts to approximate where these structures might develop. Instead I gave some the impression that I thought the selling climax would mark a long term low. That was not my intent. I will be more precise in the future.

Finally, while I think ARKK represents a great example of how a selling climax develops, I don't think it's bear market is over. I made that point in the final paragraph. ARKK has a tremendous amount of work to do before the trend could be changed from bearish to bullish.

Thanks to all who posted in the comments. There are some great observations and questions. I would encourage you to read them. The community here is (for the most part) pretty cool with many very knowledgeable participants.

Clarifications:

1) Selling climaxes clear out the immediately available supply. This does not mean that new supply can't come out.
2) Selling climaxes typically stall the market for a period of time, and often result in a trading range. But they can fail, and when they fail rapidly, which they often do in bear markets, the failure says very bad things about the asset.
3) This is why climax structures MUST BE SUCCESSFULLY TESTED before they represent anything other than short term capitulation. A micro test isn't enough for more than a few days, perhaps a quick trade. This was point 7 in the post. In retrospect, I should have made it point 1.
4) A successful test must be well separated in time from the initial selling climax. I prefer to see them play out over several weeks.
5) In other words, the huge volume and the reversal bar are only a warning that things may be changing. But, without the completed test, it is only conjecture and does not constitute (at least in my opinion) it’s a data point, not a tradable event.
6) In short, YOU MUST HAVE A COMPLETED TEST before deciding that a low of any consequence has been made.
7) I ended the piece by stating that the selling in ARKK is essentially exhausted now. I should have written it…. Essentially exhausted FOR now.
8) Finally, the only reason I monitor ARKK is the individual names in the portfolio. Funds are made up of many individual assets. Individual assets may be in very different positions in their trends than a given fund, index or market. ARKK holds many names that might eventually hold interest for me.

A final point, I think the fundamental/macro influences on equity are quite negative (just my opinion, but I am wrong a lot). Given that, its difficult for me to believe that the risk reward for a long position in ARKK is advantageous or that it will survive the testing process. But, I will follow the evidence and reevaluate if a successful test of the selling climax and subsequent bullish behavior develops.

Good Trading:
Stewart Taylor, CMT
Chartered Market Technician

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