The charts of Tesla, Ark and bitcoin are all flashing the same big warning for investors
October 12, 2022 Alex Rustok
The charts of bitcoin, Tesla and Ark Innovation ETF are all showing the same thing: That the market for the some of the riskiest holdings is at an inflection point. That could be a warning sign for the broader market as well. Jonathan Krinsky, chief market technician at BTIG, says all three are testing key chart areas that look ready to break, taking prices lower. They are all on the “cusp of cracking key levels,” he says. Tesla closed Tuesday at $216.50, below the important $220 level. Ark briefly broke below the key $35 level Tuesday, before rebounding to close at $35.65. Bitcoin is nearing a test of $18,000, Krinsky notes. “They were leadership on the way up…They’ve generally been leading to the downside,” said Krinksy. Krinksy said the group’s behavior backs his call for more downside for the S & P 500, which closed at 3,588 Tuesday. “I do think the S & P 500 is vulnerable to 3,400,” he said. “I’m not bearish on the S & P simply because of these charts, but they do add to the conviction.” Bitcoin, just below $19,000 Tuesday on Coin Metrics, could fall to $14,000, if the $18,000 level doesn’t hold, he said. “I think it speaks to the Nasdaq, and I think it will eventually translate to the S & P 500,” said Todd Sohn, technical analyst at Strategas. “The weakness from one area will leak to the S & P.” Sohn described Ark, bitcoin and Tesla as emblems for the “speculative corner of the market.” “Ark and bitcoin bottomed earlier in the summer, and they kind of treaded water since. Now, they’re starting to approach those lows again,” said Sohn. “It’s a new test, and the pressure is on.” Ark Innovation has been a poster child for the riskiest trades. “My expectation is that they all do break,” said Krinksy. “If you look at the Ark chart, it’s the fifth time we’ve tested $35, $36. Typically there’s not anything such as a triple bottom, let alone a quintuple bottom. The more times you test a level, the more likely it is you break.” Sohn points out that the Nasdaq fell to a two-year low Monday. He said it is the first time the index carved out a new low over a rolling 2-year period since 2008. Like the Nasdaq, trading in Ark, Tesla and bitcoin is tied to the direction of interest rates. “I think they are three keys for long duration,” Sohn said. “You could make the case that they’re somewhat of a clue on interest rates. If interest rates come in, they would at least try to bottom and improve. That could be somewhat of a tell that maybe rates are starting to pause.” Sohn noted that the i Shares 20+ Year Treasury Bond ETF , which serves as a bond market proxy, hit a new 11-year low Monday. The closely-watched benchmark 10-year Treasury yield touched 4% in overnight trading, and stood at 3.94% late Tuesday afternoon. Sohn noted that $206 was the May low in Tesla, and if it stays below that, it could drop to the low $100s. “If Ark undercuts $35, you’re looking at $30. That’s back to the Covid low,” he said. Bank of America’s chief equity technical strategist Stephen Suttmeier has also been watching Tesla closely. He says it is on “head and shoulders top breakdown watch.” That chart formation signals more negative action that could take the stock to $100. “A decisive break below 216-206 would confirm the head and shoulders top and suggest deeper downside risk to chart supports at 180 and 167 along with the rising 200-week [moving average] near 156 and the log scale pattern count in the 100 area,” Suttmeier wrote. –CNBC’s Michael Bloom contributed to this story
