Ark Invest Breakout - 8/29/2021

Updated: Sep 5

In this article we share our perspective on Ark Invest and why we expect a breakout within the next month ... perhaps before our IntuitEconLaunch Party on September 17th at 5pm EST. Everyone who creates a free account on the website will receive an invite. We provide directions and details in our pinned tweet.

We also provide our usual markets and macro update to discuss during our podcast on [UPDATED] Monday 6PM EST. Check Twitter for details on how to join!



Ark Invest Breakout

Timing sentiment around Ark Invest has been a big part of our investing strategy in 2020 and 2021. We've been mostly successful so far starting with investing heavily in #Genomics and #3DPrinting stocks in early 2020 to go along with our large position in Tesla. We sold our position in Tesla in December 2020, and most of our Ark Invest holdings on January 28th 2021 in response to an epic rise in prices and clear euphoria in sentiment.

We started buying back heavily into $ARKG and $PRNT in early April...increasing exposure into our favorite most beaten down leaders in these securities as their prices continued to fall until they bottomed on May 13th. By May 11th we had a significant call option position on $ARKK as sentiment around Cathie Wood fell dramatically with some calling her a "Fraud" when just a few months prior others had called her "The next Warren Buffett".

Our expectation is that once $ARKK breaks above the descending triangle above, the move higher will be fast and furious. Our reasons are articulated in our #2ndTechBubble thesis (chart). This article builds on our original Second Tech Bubble thesis which describes all the characteristics that lead to bubbles and how stocks in the #3DPrinting and #Genomics space are particularly well positioned for such a change in sentiment.

Once the breakout starts the false narratives around these securities will die quickly for reasons we explain here. In short, the fall in $ARKK had nothing to do with interest rates. The Dot Com Bubble occurred with the ten year treasury yield above 5%. Companies in $ARKK $ARKG and $PRNT are not competing with treasury bonds for capital. They are also far cheaper and more mature than tech companies during the Dot Com Bubble. Our top holdings like $NVTA and $DDD are generally small companies, with rapidly growing revenue and becoming profitable.

We are confident we understand why these stocks tanked because we predicted that they would tank two weeks before it happened...and the same logic allowed us to come within a month of timing the bottom on our top holdings. The main driver of Ark Invest performance is sentiment ... and sentiment appears to be turning ... because the reality of these companies is going viral.


We also provide our usual weekly update in this post along with a conclusion to discuss positioning.


Stocks continued to climb this week with the S&P 500 hitting yet another record high. The trend in rising stock prices broadly has parallels across other markets. The VIX which measures S&P 500 option premiums has been descending since the record high late March 2020 (Chart). Corporate bond spreads continue to tighten through the first half of this year. Although one global divergence in risk appetite has been in China where stocks are broadly down 25-30% from their peaks in January.

Gold has continued to generally underperform silver for reasons we've discussed extensively on Twitter. In short, silver is a critical part of the electric revolution that has continued to play out even though many of the stocks in this space have underperformed in 2021 after an epic rise in 2020. Silver is used extensively in #EVs, #Solar, #Batteries...but the bear market in #Gold $GLD has weighed on demand for securities like $SLV and silver miners $SIL.

Note the generally falling trend in gold... opposed to the range bound price of Silver Futures.

Cryptocurrencies have continued to outperform since our crypto bottom call on July 22, 2021. Our reasoning was a combination of technical and fundamental. Growth in ETFs, payment platforms like Square and Paypal, along with companies like DeFi Technologies have made investing in Crypto exceedingly easy since Bitcoin traded around $10,000 mid 2020. The ease of money flowing into the space is not consistent with a multi-year bear market that some were forecasting. Given that outlook were looking for consolidation in the falling wedge as we discussed during the podcast referenced below on our home page.

Our top holdings in the space remain Ethereum, DeFi Tech $DEFTF, and several DeFi coins such as Maker Dao $MKR. Decentralized Finance is in our view going to be one fo the fastest growing industries in the world for the next decade.


Inflation continues to dominate headlines, but we remain optimistic that inflation fears will take longer to manifest for reasons we shared in the Inflation Debate and Startups Boom. One reason is that several drivers are verifiably transitory such as supply bottle necks.

Supplier bottlenecks have had record breaking impacts on supplier delivery times, input and output prices. A similar pattern can be seen in the U.S. and Europe (Germany shown) but with a noticeably higher shock in the U.S. Delivery times are a major contributor, possibly to be transitory as the economy opened so rapidly while many in the labor market were reluctant to work outside of their home. How much of the rise in input and output prices was driven by more transitory factors like delivery times may become clearer as the bottlenecks ease.

We continue to monitor the pandemic, but are not concerned for reasons mentioned in our article on Delta Risk. Total Covid-19 cases continue to rise but at a decreasing rate. Calling top on the spread is challenging as evidenced by the last winter resurgence. Small differences in the transmission rate (R-Naught) have rapid compounding effects.

For example, a transmission rate of 1.1 (meaning that each infected person infects an average of 1.1 other people) would lead to a 1.1^2=1.21 or 21% increase in total cases after two weeks. Likewise, a 0.9 transmission rate after two weeks would lead to a 19% drop in cases. That’s a hypothetical 40% divergence. The highest and lowest transmitting states had a 61% divergence over the past two weeks (slide 4). This appears to be quite wide, but as illustrated, can be attributable to small differences in transmission rates.


Our major strategies generally benefit from the pandemic and resulting changes in behavior so there is no real concern here. Our "Value" shorts that we initiated two weeks ago have underperformed the S&P 500 by about 2% so we have not needed to cover these positions. DeFi Tech has continued to out perform Ethereum; which has continued to outperform Bitcoin as expected.

Sentiment in our Disruptive Innovation stocks such as #Genomics and #3DPrinting leaders $NVTA and $DDD remains low; which we view as a positive given continued beats on earnings reports. We were already heavy in these securities and own large call option exposures, slightly larger than what we shared in our last portfolio update. This is consistent with our forecast that these stocks will breakout before or around our IntuitEconLaunch Party on September 17th at 5pm EST.

Everyone who creates a free account on the website will receive an invite. We provide directions and details in our pinned tweet.


Join us tonight at 7pm EST for our weekly podcast!