Like a pint of lager left in the sun for an hour, the sparkle begins to dissipate from the once-sparkling corners of America’s stock markets.
Come back to the midst of the pandemic and a few themes dominated the US stock market. There were, of course, the winners and losers of the pandemic, but apart from those obvious renewable energy games linked to Covid, stocks and IPOs also had a spectacular year. The former apparently in the hope that the Biden administration would spend money on green energy infrastructure; the latter because, well, bored retail investors at home could find themselves behind stocks that doubled or tripled on day one of trading.
However, what goes up must come down.
This Thursday morning, the right folks at Bespoke Investment Group sent these charts, showing four ETFs that have benefited from investor hype around these trends. And it looks like now is the time to cringe, with all four funds – which include two renewables-themed funds, an IPO fund and, of course, ARK’s flagship tech fund – approaching. or rapidly exceeding their 200-day moving average. :
Now you might protest that we are referencing charts that use 200 DMA as a signal. But let’s be clear here on technical analysis: it’s useful because other people are using it. And given the retail interest in these ETFs, it’s as effective a tool as any for measuring wind direction.
Here’s what Bespoke has to say:
Thematic ETFs like those focused on clean energy and IPOs were among the biggest winners in the ETF space in 2020, but 2021 was the opposite for those same names. From the start to the end of 2020, the Invesco Solar ETF (TAN) rose 233.64%, while the iShares Global Clean Energy (ICLN) ETF also gained 140%. This year, however, both have been under pressure by 25.3% and 22.1% respectively. The worst of those declines came in February, when most of the time since the start of March they have been stuck in a bit of consolidation. At the end of April, there were unsuccessful attempts to get back above their 50-DMA, and the subsequent lower legs of those moving averages led to breakouts below the 200-DMA at more. long term this week.
While not in the clean energy business, Renaissance IPO ETF (IPO) traded similarly. After more than doubling in 2020, the IPO has fallen 9.13% year-to-date and is also below its 200 DMA today. Cathie Wood’s popular ARK Innovation ETF (ARKK) has fallen 9.31% this year after rising nearly 150% last year. While it hasn’t closed below it yet, it’s also testing its 200-DMA following a recent unsuccessful attempt to get back above its 50-DMA. For each of these ETFs, this week marks the first close below or significant tests of their 200-DMAs in almost a year.