Long term, divergence continues on the Chaikin Money Flow and the Volume Flow (VFI) despite SPY nearly reaching all time highs today. We warned that the dip early last week was not sustainable (see "Warning: Bears too Gleeful" below). This idea is officially "neutral" since it is neither a great place to long or short SPY or even garbage (where were you last week?) - at least not until we achieve the next milestone.
Nevertheless, the divergence trend shows that SPY has *a bit* more runway to increase to a new all time high. However, I think going long here is playing with fire; you really should have gone long at 3840 if you wanted to do so. Given the weakness of the volume flows supporting the price trend, we could well break down "early" before reaching the upper regression trend line. 20-90 points above current levels officially put SPY in the "danger zone" Regression Channel that has forecast every major correction since March 2020. Finally, the "garbage index" suggests that the stock market bubble has been in slow motion collapse since January; it's interesting how ARKK diverging from SPY is closely tracking the flow indicators and their similar divergence. The weak millennial Robinhood trash fall first, the stalwart Boomer stocks of the DOW fall last, and that's how the bubble pops?
I will continue to hold my shorts of garbage discussed in previous ideas (ARKK, NIO, etc) and consider opening a small shorter term short position on SPY or AAPL or another less trashy asset if the divergence continues when SPY reaches the 3980-4040 zone (pink box).
Quick Note
For those who might argue that ARKK's decline is solely due to rising interest rates which have similarly hammered FAANG stocks, that is hard to square with the fact that (1) rates have been falling for over a week while ARKK has declined by nearly 15% from last week's highs and (2) the garbage destruction has extended to "value" garbage stocks as well (much of IWM, AMC, GME); in fact, IWM nearly made a yearly low this week which suggests something other than the same old "rotation out of tech due to high rates" is at play (old news). I would posit instead that garbage is declining everywhere whether it is "value" or "tech", even airlines and cruises, and that interest rates are only a part of the reason.
The reason ARKK is garbage is because they are essentially applying a VC model by investing in unproven companies and technologies (space exploration, electric vehicle hovercraft, TSLA at January valuations) but at a premium to what a VC would pay for shares of those companies much earlier in their lifecycles; a VC fund can do okay if 90% of its investments fail, and the remaining 10% hit homeruns. This will be much harder for ARKK to do paying retail market prices for high risk companies - especially SPACS with significant after market decline almost "built in" to the model by this point--and having to fulfill daily liquidity obligations the entire time.
Nevertheless, the divergence trend shows that SPY has *a bit* more runway to increase to a new all time high. However, I think going long here is playing with fire; you really should have gone long at 3840 if you wanted to do so. Given the weakness of the volume flows supporting the price trend, we could well break down "early" before reaching the upper regression trend line. 20-90 points above current levels officially put SPY in the "danger zone" Regression Channel that has forecast every major correction since March 2020. Finally, the "garbage index" suggests that the stock market bubble has been in slow motion collapse since January; it's interesting how ARKK diverging from SPY is closely tracking the flow indicators and their similar divergence. The weak millennial Robinhood trash fall first, the stalwart Boomer stocks of the DOW fall last, and that's how the bubble pops?
I will continue to hold my shorts of garbage discussed in previous ideas (ARKK, NIO, etc) and consider opening a small shorter term short position on SPY or AAPL or another less trashy asset if the divergence continues when SPY reaches the 3980-4040 zone (pink box).
Quick Note
For those who might argue that ARKK's decline is solely due to rising interest rates which have similarly hammered FAANG stocks, that is hard to square with the fact that (1) rates have been falling for over a week while ARKK has declined by nearly 15% from last week's highs and (2) the garbage destruction has extended to "value" garbage stocks as well (much of IWM, AMC, GME); in fact, IWM nearly made a yearly low this week which suggests something other than the same old "rotation out of tech due to high rates" is at play (old news). I would posit instead that garbage is declining everywhere whether it is "value" or "tech", even airlines and cruises, and that interest rates are only a part of the reason.
The reason ARKK is garbage is because they are essentially applying a VC model by investing in unproven companies and technologies (space exploration, electric vehicle hovercraft, TSLA at January valuations) but at a premium to what a VC would pay for shares of those companies much earlier in their lifecycles; a VC fund can do okay if 90% of its investments fail, and the remaining 10% hit homeruns. This will be much harder for ARKK to do paying retail market prices for high risk companies - especially SPACS with significant after market decline almost "built in" to the model by this point--and having to fulfill daily liquidity obligations the entire time.
