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Cathie Wood’s ARK ETF offers a ‘great lesson for us investors not to buy falling knives’: Strategist

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Marketguage.com Partner and Director of Trading Research & Education Michele Schneider joins Yahoo Finance Live to analyze small cap stocks and thematic ETFs.

Video transcript

ZACK GUZMAN: Well, welcome back as we have seen volatility come back into the market this week after last week's Friday's big sell-off. It's time to get technical here. I want to bring on Yahoo Finance's chart master, Jared Blikre, standing by with a very special guest. Jared.

JARED BLIKRE: That's right. Standing by is Michelle Snyder-- Schneider, excuse me-- Marketgauge.com partner. Mish, great to see you, as always. Been a lot happening over the last week, as you know. And I want to start with the small caps. Because if we go to the YFi Interactive here, I'm going to pull up a one-year chart. And we can see after trading sideways almost the entire year, they broke to the upside and then, whoops, fell right back down very quickly to the support level, potential support level. I'm just wondering what you're seeing in the charts here.

MICHELLE SCHNEIDER: Well, yeah, the small caps are always the key to watch because, obviously, we have 2,000 stocks in that basket that are all represented in the United States. So it's going to give you the best idea of what the anticipation is for the US economy. And I think that sideways action we saw all year was really the unknown about whether or not we were going to see some true growth after we came back from the COVID, or whether or not we were going to go more into a stagnating economy. And I think essentially, that's what we're seeing right here.

From a technical standpoint, we've broken down under the 50-week. And that's the only index so far that has done that. And so, yet, we're holding really some good significant lows. Believe it or not, 190 was the low this year. 209 was the July low, and 215 has been very pivotal thus far. So I think that's what we have to keep an eye on here, is whether or not we lose 215. What happens if we get down below to 209? And will we go to 190? And if we hold 215, then if we can get back through that 222, 223 level, that's an amazing amount of optimism, which would most likely be because they think the Fed is going to step back from that tapering.

JARED BLIKRE: Yeah, optimistic indeed. Well, I want to move on to an ETF which has just absolutely gotten battered this year. This is the Ark Innovation ETF. And I'm just looking at this one-year chart, down 19%, but off quite a bit more from this high. I think it's 40%, 45% right now. This is the lowest level we've seen quite in some time. And we know the components of it have gotten smoked as well with the growth trade. So what do you see in this particular ticker here?

MICHELLE SCHNEIDER: Well, I really kind of feel for Cathie Wood here. I mean, she's been quite out there and, in fact, sort of doubled down on her position about these disruptive tech going to be the future. And she could be right. But as we know, as traders, timing is everything. And she took a big hit today because she's very long DocuSign, which is down tremendously. So, yeah, as you mentioned, the fund peaked in February 2021 at 160. So here we are, trading now at around 97, or actually lower, 92. 97 was the old low in 2021. Now we've broken that.

So, essentially, at some point, you have to say, when will some of these stocks that she's so hot about turn around, Hood being one, Fastly, Teladoc. And so, I would say, if we look at the chart, if we can get down and hold somewhere around 60, 70, that would probably be really tempting as a bottom. And if we don't get there, we get back through the 98 or the old low from 2021, then maybe we'll start to see some of these other stocks get some kind of reprieve. But it's a great lesson for us investors not to buy falling knives and not to get too committed to your own opinion. Timing, of course, is the key and risk.

JARED BLIKRE: Exactly. We got a little bit of time here. I do want to hit one of the automotive stocks that you flagged earlier today. This is going to be O'Reilly Automotive. Let me just pull up a year-to-date chart. This is a stock with strength. And we can see it's up nearly 50% here. And it's testing these highs from October.

MICHELLE SCHNEIDER: Well, yes, and it's interesting that O'Reilly and some of these other car companies like Advanced Auto Parts are doing so well. It makes sense because in terms of pricing power, they can pass higher costs to consumers because people need to fix their cars because right now, it's expensive to go out, rent a car, buy a car, used or new. And that's why that-- one of the reasons why that stock is doing so well. So we're near all-time highs.

The troubling thing about chasing it here is momentum actually is not nearly as good as it was the last time we visited these levels. So right now, what I would say is, could it get to 680? Maybe, but it's a little overbought. Maybe I'd want to see somewhat of a dip here to see what happens, maybe somewhere around 650, 655. And that might be a good place to look at getting back in.

JARED BLIKRE: All right, Mish, we're going to have to leave it there, but always great to see you here. Michelle Schneider, marketgauge.com partner.

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