In the twelve months between the Covid crash bottom in March 2020 and February 2021, the ARK Innovation ETF (NYSE:ARKK) 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.