Emergency Meeting Called to Address Market Pullback

Shah Gilani|January 27, 2022

If you enjoy watching my appearances on Varney & Co., you may be familiar with my nickname: The King of Buy-the-Dips.

Stuart Varney himself gave me that name because, as a guest of his show every week for the past eleven years, I’ve been calling every single dip. Every single buy-the-dip opportunity. And I’ve been right every single time.

This week I added another to the track record. I told Stuart that the selloff we’re seeing right now is another opportunity caught in the convergence of three super-wealth building events.

And today, I’m calling an emergency meeting tonight at 7:00 pm ET to tell you about them. This isn’t your average buy-the-dip event, so I’m working double-time to ensure you have to stocks to withstand this market pullback.

First of which I’ve included in this special edition of Total Wealth Research.

Skittish Investors Create Buy Opportunity of a Lifetime

The S&P 500 was down 3.8% on Monday only to reverse, closing up by 0.3%. The Nasdaq was down 4.9% intraday and closed up 0.63%, that’s as different as night and day.

We haven’t seen an intraday reversal like that since the financial crisis in 2008. And that’s just the tip of the iceberg.

The Fed’s facing higher than expected inflation prospects that could rival the 1970s and, to combat it, way take away the punchbowl that markets have been drinking from since ’09. Investors are skittish – causing profit-taking, outright selling, and institutional shorting.

It’s a nerve-wracking time to be in the markets – but my mantra is all the same: Buy the dip.

Because as scary as this moment may seem, consider this: the Dow made another all-time high just three weeks ago. And no, there hasn’t been any trend reversal since then, we haven’t fallen into a recession, and interest rates haven’t gone through the roof.

Investors are just afraid all that could happen.

And because of it they’ve created a wonderful opportunity. Unlike the others I’ve discussed here, this selloff requires a more targeted approach. You can’t apply retail’s usual “buy anything and everything” mentality – because this dip is different.

I’ll tell you all about how in greater detail tonight during my Emergency State of the Markets address. You can sign-up for the event by clicking here.

But I know eleven hours is a long time to wait, which I why I’ve hand-picked a new play for you to get this ball rolling.

Ready, Aim, and…

This morning, your target is Cathie Wood’s ARK Invest Funds.

This may come as a surprise. The ARK Funds’ “set-up” has always looked (to me) like an accident waiting to happen or a too-good-to-be-true magic hat from which anything can be pulled.

The magic to me is how Cathie Wood constructs the “disruptive” portfolios underlying the six actively managed ARK Invest Funds she’s become famous, and lately infamous, for.

The flagship ARK Innovation ETF (NYSE: ARKK) and the others have intrigued the trader in me since they were founded in 2014. Most of the stocks Wood puts into her active ETFs are “hot list” names – companies in the news – followed by hedge funds and retail traders and investors. Their name value alone is a selling… I mean buying, point.

And because most of the names in the ARK funds were actively covered by everyone from the financial media to retail trader chat rooms and market “influencers,” they’ve enjoyed a solid upward momentum. All the more reason for Wood to tuck them into her funds.

But a good look into the portfolios underlying the ARK active ETFs reveals a couple of interesting “tells.”

One is the fact that ARK stuffs its portfolios with too many unprofitable companies that are hot on futuristic promises and hype – fluffed-up stocks that momentum chasers, retail traders, and trend-savvy hedge funds go after. Which works for everyone on the upside when interest rates are low and folks drunk on a bullish mentality rush after every disruption narrative they see.

Think early pandemic, just as retail trading picked up steam and shook up the paradigm.

At times, as many as one-third of the companies in some ARK funds are unprofitable, sporting high promises and low earnings, but a disruptive moniker that’s carried by the media.

The other “tell” is this: ARK is responsible for 5%-to 10% of average trading volume on any day the funds see large inflows of new investor capital.

On average, over the past three years, ARK has been responsible for about 2% of the average daily volume in many of the names it owns. Which certainly works in its favor, momentum-wise, in an up-trending market when ARK managers have to buy shares of all the underlying stocks that make up their portfolios.

It worked for the ARK Innovation ETF, which on some heady days early last year saw daily inflows of more than $1 billion. The fund took a ride to new heights in 2020, climbing up by 148% into early 2021.

Then the trouble started.

But only for ARK. For us, it’s a hole-in-one opportunity.

Those “tells” only worked on ARKs behalf on the way up. In shakier times, these strategies would work against the funds and their underlying names all the way down.

ARK Innovation is down close to 58% from its 52-week highs, and down 22% year to date in 2022. As the price of ARKK falls and investors sell shares, all the stocks underlying the portfolio have to be sold as units are destroyed.

That spells opportunity. The selloff has helped knock down some great stocks, down to the discount row you’d expect to find in Filene’s Basement, if those old brick and mortar stores were still open.

Within ARKK’s top ten holdings you’ll find Roku Inc (Nasdaq: ROKU) is down almost 70%, Zoom Video Communications Inc (Nasdaq: ZM) is down about 67%, and Shopify Inc (NYSE: SHOP) is down 50%.

Those are solid companies with huge revenues and great profit margins, especially the 81% profit margin at Shopify. They’re all very profitable and sitting on lots of cash relative to easily manageable debt loads, including Zoom’s tiny $98 million in debt

And are all on sale.

You buy them when markets are scary because they’re stalwart, must-own names that will always rise with the tide and rise a lot faster than the rest of the boats racing back out to catch big profits.

What you buy in this correction is important. As I mentioned up top, this time is different.

Once you’ve got this play secured, come see me live tonight. I’ll be on Money Morning Live at 7:00 pm ET, but you’ll be to sign up in order to attend.

You can do that by clicking here.

See you then,

Shah