Under the surface, we are seeing breakdowns in high-beta stocks that had formerly been upside leadership for the market, even as the major indices hold up above initial support. A correction has been in place for high-flying stocks since mid-October, which has resulted in a one-month return of -11.7% for the ARK Innovation ETF (ARKK) , a high-growth technology stock proxy. We view the sell-off in ARKK as a risk-off indication for the broader market. The correction in ARKK looks poised to deepen over the next few weeks, at least. Intermediate-term momentum recently shifted to the downside per the weekly MACD, and the weekly stochastics have room to move into oversold territory. Next support on the chart is near $67, where the February high and the 200-day MA converge. The daily chart suggests that there is downside risk in the short term to the 200-day MA. ARKK broke down below cloud-based support late last week as a fresh bearish catalyst. The daily MACD shows that short-term momentum is strongly negative, and there are no signs of downside exhaustion yet. The ratio of ARKK to the SPX saw a steep run-up in September, reflective of a strong tape led by riskier assets. The ratio has since seen a significant retracement, indicating that the market is now avoiding risk. The underperformance has resulted in a downturn in the 50-day MA for the ratio, something we last saw in late February. The ratio also has room to move toward next support from its 200-day MA, supporting additional downside leadership from ARKK in the near term. In conclusion, the sell-off in ARKK is a risk-off indication for the broader market, which looks vulnerable to a deeper correction over the next few weeks. We would be quicker to reduce exposure to volatile technology stocks, which tend to get hit harder than the average stock during corrective phases. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer. Fairlead Strategies Disclaimer: This communication has been prepared by Fairlead Strategies LLC (“Fairlead Strategies”) for informational purposes only. This material is for illustration and discussion purposes and not intended to be, nor construed as, financial, legal, tax or investment advice. You should consult appropriate advisors concerning such matters. This material presents information through the date indicated, reflecting the author’s current expectations, and is subject to revision by the author, though the author is under no obligation to do so. This material may contain commentary on broad-based indices, market conditions, different types of securities, and cryptocurrencies, using the discipline of technical analysis, which evaluates the demand and supply based on market pricing. The views expressed herein are solely those of the author. This material should not be construed as a recommendation, or advice or an offer or solicitation with respect to the purchase or sale of any investment. The information is not intended to provide a basis on which you could make an investment decision on any particular security or its issuer. This document is intended for CNBC Pro subscribers only and is not for distribution to the general public. Certain information has been provided by and/or is based on third party sources and, although such information is believed to be reliable, no representation is made with respect to the accuracy, completeness, or timeliness of such information. This information may be subject to change without notice. Fairlead Strategies undertakes no obligation to maintain or update this material based on subsequent information and events or to provide you with any additional or supplemental information or any update to or correction of the information contained herein. Fairlead Strategies, its officers, employees, affiliates and partners shall not be liable to any person in any way whatsoever for any losses, costs, or claims for your reliance on this material. Nothing herein is, or shall be relied on as, a promise or representation as to future performance. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Opinions expressed in this material may differ or be contrary to opinions expressed, or actions taken, by Fairlead Strategies or its affiliates, or their respective officers, directors, or employees. In addition, any opinions and assumptions expressed herein are made as of the date of this communication and are subject to change and/or withdrawal without notice. Fairlead Strategies or its affiliates may have positions in financial instruments mentioned, may have acquired such positions at prices no longer available, and may have interests different from or adverse to your interests or inconsistent with the advice herein. Any investments made are made under the same terms as nonaffiliated investors and do not constitute a controlling interest. No liability is accepted by Fairlead Strategies, its officers, employees, affiliates, or partners for any losses that may arise from any use of the information contained herein. Any financial instruments mentioned herein are speculative in nature and may involve risk to principal and interest. Any prices or levels shown are either historical or purely indicative. This material does not take into account the particular investment objectives or financial circumstances, objectives or needs of any specific investor, and are not intended as recommendations of particular securities, investment products, or other financial products or strategies to particular clients. Securities, investment products, other financial products or strategies discussed herein may not be suitable for all investors. The recipient of this information must make its own independent decisions regarding any securities, investment products or other financial products mentioned herein. The material should not be provided to any person in a jurisdiction where its provision or use would be contrary to local laws, rules, or regulations. This material is not to be reproduced or redistributed absent the written consent of Fairlead Strategies.
A correction in Cathie Wood’s ARKK ETF is set to deepen, says Katie Stockton
