Benzinga - by Melanie Schaffer, Benzinga Editor.
The Cathie Wood-led Ark Innovation ETF (ARCA: ARKK) was surging up almost 5% higher on Tuesday, surging up from the near the 200-day simple moving average (SMA).
The 200-day SMA is an important bellwether. Technical traders and investors consider a stock trading above the level on the daily chart to be in a bull cycle, whereas a stock trading under the 200-day SMA is considered to be in a bear cycle.
The 50-day SMA also plays an important role in technical analysis, especially when paired with the 200-day. When the 50-day SMA crosses below the 200-day SMA, a death cross occurs whereas when the 50-day SMA crosses above the 200-day, a bullish golden cross takes place.
Bullish On Disruptive Innovation? Traders and investors looking for leveraged long exposure to ARKK can play the AXS 2x Innovation ETF (NASDAQ: TARK).
TARK is an actively managed 2X leveraged ETF aiming to return 200% of the daily performance of ARKK. This leverage boosts trade performance, which can offer significant gains for traders.
Through trading TARK, investors benefit from upswings in ARKK, which holds stocks in industries such as electric vehicles, next-gen Internet, genomics and fintech. ARKK’s largest holdings are Tesla, Inc (NASDAQ: TSLA), weighted at 10.75%, Roku, Inc (NASDAQ: ROKU), weighted at 8.35% and Zoom Video Communications-A, which makes up 7.65% of the fund’s holdings.
It should be noted that leveraged funds are designed for short-term traders and shouldn’t be held for a long period of time.
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The ARKK Chart: ARKK back-tested the 200-day SMA on Aug. 18 and bounced up from the area on higher-than-average volume, which indicated the retracement was healthy and the indicator was recognized by the algorithms. Since then, ARKK has confirmed a new uptrend, making a consistent series of higher highs and higher lows.
- ARKK’s most recent confirmed higher high was formed on Aug. 24 at $42.30 and the most recent higher low was printed at the $40.14 mark the next trading day. On Tuesday, ARKK was spiking up over the previous higher high, confirming the uptrend remains intact.
- The ETF was working to print a bullish engulfing candlestick, which suggests higher prices may come on Wednesday. The second most likely scenario is that ARKK forms an inside bar pattern on Wednesday to consolidate the recent surge, which would lean bullish for continuation later in the week.
- If ARKK can close Tuesday’s trading session above the 21-day exponential moving average (EMA) and remain trading above the area for a period of time, the eight-day EMA will eventually cross above the 21-day, which would give longer-term bullish traders more confidence going forward.
- Bearish traders want to see ARKK consolidate sideways and then for big bearish volume to come in and break the ETF under the 200-day SMA.
- ARKK has resistance above at $43.83 and at $45.43 and support below at $41.29 and at $37.93.
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