What is the long-term MONTHLY chart of ARK (NYSE:ARKK) telling us?
To understand the chart, let me introduce and explain the concept of Capitulation, which is, by the way, a well-known concept among traders.
There is a Capitulation in the market when investors massively liquidate long positions in any security or asset by selling their positions after relatively long periods of decline.
In other words, in a sell-off, investors capitulate to the market bears’ forces and give away their positions in order to stop the losses.
This is, by definition, an emotional behavior, and, for that reason, many market professionals consider it to be a sign of a bottom in prices and consequently a good time to buy.
Long-term MONHLY chart of ARK:
Positive signals:
There is a prolonged downward trend starting on August 21, and arriving at a bottom on March 22. During this period, the shares’ volume increased dramatically. This high volume is a positive signal because it means that a considerable proportion of the shares has been transferred to new “healthy” buyers.
Moreover, there is apparently a bullish hammer formation on March 22.
A bullish hammer is a single candle found within a price chart indicating a bullish reversal. It differs from other candlestick patterns due to its single candle hinting at a turn during an established downtrend.
Negative signals:
The long-term 50-period moving average has been crossed downward, and the 20-period RSI indicator is lower than 50 (around 42).
These 2 indicators are still bearish, signaling that the negative trend, which is currently fuelled mainly by fears of inflation and rising interest rates, is on track.
CONCLUSION:
The risks remain to the downside. However, there are early signals that the downside may get exhausted soon. The upside trend may be strong if it gets started. The needed formation to signal exhaustion of the bear trend is that the April monthly candle turns out to be green or red with a small body and a long wick.