Big bets against Cathie Wood ARK Innovation exchange-traded fund (ticker ARKK) have hit an all-time high. Could this be a contrarian indicator for bottom feeders that the tech wreck of 2022 could be bottoming out?

For those unfamiliar, Caithe Wood’s Ark focuses on disruptive innovative technologies.

“ARK aims to deliver long-term capital appreciation by investing in the leaders, enablers, and beneficiaries of disruptive innovation,” writes Ark fund’s website.

But Cathie Wood ARK Innovation is not for the gray-haired faint-hearted types settling down to a stress-free retirement. You rarely see pensioners riding big dippers, and Cathie Wood’s ARK fund swings wildly with the Nasdaq. Investors need to be physically and mentally robust to cope with the volatility of G forces. In 2020 Cathie Wood’s ARK provided sky-high returns of 150% 2020 and that helped Ark Invest attract more than $17 billion in assets under management in its flagship fund. But in 2021, Cathie Wood ARK posted a 20% loss. Moreover, in January’s Fed tapering talk-inspired tech wreck, which has seen the Nasdaq down nearly 15%, making it the worst month for the technology-laden index since the 2008 financial crisis, Cathie Wood’s ARK has nosed dived 24% to date.

ARK aims to deliver long-term capital appreciation by investing in the leaders, enablers, and beneficiaries of disruptive innovation

ARK website

In a zero-sum game for every losing fund, there is going to be a winner, and the big bets against Cathie Wood ARK are having a bear feast.

So, meet Matthew Tuttle’s SARK Tuttle Capital Short Innovation ETF with a sole function to profit from bets against Cathie Wood ARK Innovation. The anti ark fund is near a 52 week high and has gained 10% in two weeks. 

Anti Ark fund, is surprised that he isn’t drawing more capital flows. We guess people just don’t like betting against the future. 

“We’ve had a couple of holidays since the launch, so I’m sure that goes into the mix,” but “I don’t think the vast majority of people have grasped what I think this [ETF] is and it’s a better hedging tool” than other products out there,” said Tuttle.

Could big bets against Cathie Wood ARK Innovation exchange-traded fund be about to be blown out of the water? 

Seasoned investors know the worst time to take out insurance against falling stock prices is when everyone thinks the sky is about to fall, and the best time is when everyone is drunk on euphoria. 

In a zero-sum game for every losing fund, there is going to be a winner, and the big bets against Cathie Wood ARK are having a bear feast

WEALTH TRAINING COMPANY

“It’s human nature to follow the old saying, ‘The bigger they are, the harder they fall,” said Matt Maley, chief market strategist for Miller Tabak + Co. “However, shorts should be very careful over the near term. Even the biggest declines have sharp bounces, so these funds are getting ripe for short squeezes soon,” he said. 

Here is a chart which shows the extent of the big bets against Cathie wood at a record high.

“Like most large asset managers at that time were becoming more Benchmark sensitive” – Cathie Wood

Short interest as a percentage of shares outstanding on the $12 billion ARK Innovation exchange-traded fund (ticker ARKK), Ark Investment Management LLC’s biggest fund, has jumped to a record 8.6%, according to data from IHS Markit Ltd. Bets against the $3.8 billion ARK Genomic Revolution ETF (ARKG) and the $2.6 billion ARK Next Generation Internet ETF (ARKW), the firm’s next largest funds, are also near records.

In a recent interview Cathie Wood gave a soul-searching reason why she left AllianceBernstein, fund managers where she worked before setting up Ark. “Like most large asset managers at that time were becoming more Benchmark sensitive,” she said. “They were hiring more quant researchers who are all about benchmarks and putting it at the center of the investment process,” she said.

“This is not what innovation is all about. Innovation is all about the future; passive indexes are tried and true, but they are all about the past. I felt the world needed what we are offering, the type of rapper that focuses on technology innovation,” said Cathie Wood. 

“One of our missions and values is that we want to help investors and advisers. But we also want to help parents and grandparents understand how rapidly the world is going to change and how to make sure from an educated point of view they guide their families and their students to the right side of change,” added Cathie Wood. 

the economy is showing signs of decelerating with declining consumer confidence” – Wealth Training Company

Whether the bets against Cathie Wood succeed could depend on whether the Fed decides to go forward with their hawkish four-rate hikes and reduce the balance sheet

The Nasdaq index tends to be sensitive to rate hikes since many of the companies are young and have yet to make a profit. These companies tend to do well in a low interest rate environment.

So, if you believe the Fed decides to aggressively tighten, to dampen down inflation, then more expensive credit could be a continuing headwind on Cathie Wood’s ARK Innovation fund.

But there is also a reason why the Fed could delay the rate and pace of tightening. What if peak inflation has arrived? Eventually, the supply bottlenecks will resolve with time. 

Declining worker participation rates is likely to put a lid on wage increases and automation, digitalisation continues to reduce the cost of goods and services. 

Moreover, the economy is showing signs of decelerating with declining consumer confidence.

Earnings season is the next big test for the market and values stocks in the week ahead. But earnings are neither bullish. 

Goldman shares drop 7% after earnings miss, on surging expenses, equities trading slowdown, and litigation expenses. Netflix‘s stock fell as much as 20% in after-hours trading due to a negative outlook for its future growth. 

So with the economy decelerating and already several high profile companies giving negative guidance, will the Fed aggressively tighten and reduce its balance sheet into what could already be a slowdown. Geopolitical concerns are also back on the radar. 

Bets against Cathie Wood ARK might not be wise if the Fed decides to delay or slow the pace or rate of tightening.