My friend Ari Wald is a managing director and the head of technical analysis at Oppenheimer & Co.
In my book, he’s one of the top technicians in the world today. I don’t say that about many people. But he’s right at the top of my list.
He wrote something in his Saturday morning note that really stuck with me.
“Our best ideas occur when what we expect to happen overlaps with what is happening,” Ari wrote.
It really resonated with me. I’ve been thinking about that sentence ever since.
He’s so right.
I even made a Venn Diagram about it. How’d I do?
Good Friends and Smart Thoughts
I can have expectations about what a stock is likely to do next. But that doesn’t mean the market gives a damn what I think.
But if my analysis suggests one thing and the market agrees, now we’re talking.
It’s when the market agrees with me that we make the most money.
And it may sound like common sense. But the truth is I’ve never really thought about it like this.
You see why it’s nice to have smart friends?
They get you thinking!
The Overlap
A great example in the current market is what’s happening with the ARK Innovation ETF (ARKK).
ARKK, managed by the notorious Cathie Wood, is the poster child for what we call “speculative growth.”
ARKK is the bellwether for this group of stocks. And it has its highest short interest ever.
In other words, more investors are betting this basket of stocks falls in price than at any point in the fund’s history.
We’ve been buying the type of speculative growth stocks you find in this ETF because, well, I believe the shorts are wrong.
Generally speaking, the market doesn’t care what I believe.
Here, as it turns out, the market does care.
And the market does agree the shorts are wrong.
And they’re getting squeezed!
It would be one thing had this consolidation not resolved higher in the direction of the underlying trend.
That would mean the market is invalidating our thesis.
This consolidation resolving higher, as we figured it should, is what my friend Ari was writing about over the weekend.
What’s happening in the market is overlapping with our expectations.
This is how our best ideas are revealed… and this is how they turn into massive profits.
I want to give a huge shoutout to Ari. I’m a big fan. I tell him all the time.
And let’s keep our eyes on ARKK.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs