What You Need to Know
- JPMorgan Chase & Co.’s Shawn Quigg says a second half increase in bond yields could trigger declines in the ARKK ETF.
- He argues that the recent big drop in Treasury yields is temporary and will be reversed.
- Quigg recommends investors buy ARKK October $105 put options.
Cathie Wood’s flagship ETF is showing many of the bubble-like traits seen in growth-based funds in 2000 and investors should consider betting against it with options, according to JPMorgan Chase & Co.’s Shawn Quigg.
The derivatives strategist reckons a second-half increase in Treasury yields could trigger declines for the ARK Innovation exchange-traded fund (ticker ARKK), which is up about 19% since mid-May.
“Enter the bull trap reversal,” Quigg wrote in a Thursday note to clients. “A looming rise in yields could be a catalyst to accelerate ARKK shares lower, in addition to the continued outperformance of large staple-tech stocks over disruptive-tech stocks, and pressing ARKK into the capitulation phase.”
The 10-year U.S. Treasury yield has fallen more than 40 basis points to about 1.32% from a recent peak at the end of March, helping spur the rebound for ARKK. Quigg argues that’s a technical move, set to be undone as the reopening trade reasserts itself in the rest of the year.
Wood’s Ark Investment Management enjoyed a stellar start to 2021 propelled by gains in sectors such as electric vehicles, biotech and cryptocurrencies, as well as advances in stocks that benefited from the stay-at-home trade.