Opinion: $ARKK Growth Stocks Have Bottomed for the Year and Could Extend into Early 2022
Growth stocks are well off their highs amid a deleveraging cycle. The market has seen a rotation out of speculative growth names like PLUG, UPST, ASAN, LCID, AFRM, NET SKLZ and more as the inflation narrative came back into play with a fed deciding to speed up the tapering of their bond purchases and hinting at rate hikes next year. The pain is most likely over here and I am calling a bottom on these lists of names for the year. Here is why:
Market Rebalancing: The U.S markets are rebalanced on a quarterly basis on the third Friday of March, June, September and December on the basis of their weighting and other relevant factors. Both retail and institutional investors often use the end of a quarter to re-evaluate and rebalance their portfolios. Traditional rebalancing involves trading the gains of well-performing assets, by selling high, for more low-performing assets, by buying low, at the end of each quarter. The ‘low performing assets’ are speculative growth names like I mentioned and more.
Short-Covering: These names have been highly shorted and to say the least, the shorts have banked. The market is simply a bunch of humans following each other. When they all scream “fire”, they all run to the exit simultaneously. This is what is happening on speculative-growth names right now. Massive short covering is underway here.
Omicron Narrative: Don’t be surprised to see the ‘omicron narrative’ continue to be floated out. Cases of the strain are rising across United States. The ‘omicron’ market narratives forces rotation out of economically sensitive names and into more growth-centered stocks as the narrative negatively affects economic growth. It also could also create some sort of a ‘deaccelerating fed taper’ narrative to start to be priced in by the market.
Market Technicals: Capitulation-type moves occurred in speculative growth names today. There was huge accumulation on the long side into areas where there was very limited liquidity. Low-volume nodes are now apparent showing the immense demand coming into the tape. Many of these growth stocks are near previous longer-term supply levels. They are catching bids exactly where they need to. Shorts understand this and will now get out of the way. ARKK, the benchmark for these growth names to lead the overall market for the first time in a long time. Speculative growth names are showing relative strength today. Look for growth stocks to outperform into year-end.