News headlines trumpeted the S&P 500‘s official entrance into bear country over the weekend. Friday finally saw the popular stock index fall 20% from its peak, triggering a bear market. But do you know which fund didn’t see its downtrend hit a new low last week? The Ark Innovation Fund (NYSEARCA:ARKK). The rare bout of strength might signal more relief for the battered companies that make up the fund. I scoured its holdings and found three ARKK stocks to buy if you think the recent outperformance can stick.
Make no mistake, buying these names is a contrarian bet here. Growth stocks have become poison to portfolios thanks to the regime shift at the Federal Reserve. The monetary magicians have become inflation fighters on an aggressive campaign to save purchasing power. As a result, the cost of capital is climbing, and investors are no longer willing to subsidize unprofitable companies. Future gains have taken a back seat to current cash flow, and the sentiment very much has ARKK stocks out of favor.
But last week’s relative strength is promising, and many are due for a bounce. Here are three of my favorites.
| Ticker | Company | Current Price |
| RBLX | Roblox | $29.97 |
| SHOP | Shopify | $362.93 |
| SE | Sea Limited | $77.31 |
Finding stocks that reacted positively to earnings this season has been challenging. The landscape is littered with companies destroyed after reporting disappointing numbers. Fortunately, Roblox (NYSE:RBLX) wasn’t one of them. The price surge following its earnings miss is the primary reason I’m spotlighting it.
While the rally didn’t reverse the uptrend, it did shepherd prices to overhead resistance. Couple that with last week’s narrow consolidation, and we now have the makings of an easy breakout trade if bulls press their bets. Consider using $36.50 as your trigger. If we don’t push above it, then I would not place a trade. We’ve seen many false bounces along the way, so it’s arguably better to wait for more confirmation than less.
Option prices remain expensive on RBLX stock because of its high volatility. Thus, spreads are preferable to buying options outright.
The Trade: Buy the Jul $35/$45 bull call vertical.
Shopify (NYSE:SHOP) has something that today’s two other companies do not: Profits. Unfortunately, it hasn’t allowed the Canadian e-commerce giant to escape the wrath of the bear market. Earlier this month, prices were down 83% from their peak. But it could be a differentiator moving forward. The looming 10-for-1 stock split scheduled for June could also help drum up interest.
Like most other ARKK stocks, Shopify didn’t make a new low with the S&P 500 last week. Instead, it based sideways beneath the $410 resistance zone, creating an obvious range to create trades around. As with RBLX, you might wait for a break above the ceiling to confirm the daily trend is turning up.
The higher price of SHOP stock makes spread trades a must. Let’s go with a higher probability play using bull puts.
The Trade: Sell the June $290/$280 bull put spread for around $1.75.
Sea Limited (NYSE:SE) rounds out today’s trio of ARKK stocks to buy with a positive response to earnings and relative strength during last week’s market meltdown. The combination is creating a short-term bullish breakout pattern with room for prices to run to $100.
Once again, a trigger is critical to show buyers can power SE stock through short-term resistance. There’s always a chance this bounce fails, so waiting for prices to power through the ceiling is recommended. For now, I’m watching $83.
The Trade: Buy the July $80/$100 bull call spread for around $7.
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