One Chart Shows Why This Group of Tech Stocks Is Due for a Massive Breakout

As anyone who knows me will tell you, I’m not much of a “chart guy.” I normally pay much more attention to the fundamentals and the macros of an investment (rather than its technical). In long run, the fundamentals and macros will ultimately determine the trajectory of a stock.

An image of a businessman holding a magnifying glass, looking at a green arrow rising on a chart.

However, I do understand the value of technical analysis. And last week, I compiled a chart depicting a certain group of tech stocks is primed for a huge breakout!

As it turns out, this chart comes to the exact same conclusion that my fundamental and macro analysis did. And of course, I’m bullish.

Let’s get to the chart in question.

The Most Compelling Chart for Hypergrowth Tech Stocks

Over the past year, hypergrowth tech stocks have struggled in a significant way. Essentially, they rallied big through the entire 2010s. Investors grappled with inflation fears in 2021 for the first time in decades.

But over the past few weeks, those beaten-up hypergrowth tech stocks have staged a remarkable comeback. The likes of it could be a huge turning point for the sector.

Just look at the following chart, which graphs Cathie Wood’s ARK Innovation exchange-traded fund (NYSEARCA:ARKK). That portfolio of about 36 different tech stocks serves as a good proxy for the hypergrowth tech sector.

Over the past few weeks, the ARK ETF bounced off a lifetime support level for the fund.

It first hit this support level in early 2016, after the Fed entered its first rate-hike cycle since 2008. The ETF proceeded to rebound strongly and rallied in a significant way over the next four years.

Then, during the Covid-19 market meltdown of March 2020, the ARK ETF hit this lifetime support level once more. Yet again, it rapidly rebounded off it and rallied in a huge way over the next year.

Today we find ourselves in a similar situation. The ARK ETF has crashed to its lifetime support level. And it has immediately, significantly and rapidly rebounded again.

History shows that what comes next is a big rally in hypergrowth tech stocks. If not, then a multi-year trend dating back to 2016 will break — which we view as highly unlikely.

This chart is just one data point in a sea of analysis. And it all supports the notion that hypergrowth tech stocks are due for a big melt-up in 2022.

Lots of Buy Signals Are Flashing for Tech Stocks

Indeed, we have three other key data points that strongly support the hypergrowth tech stock bull thesis at present.

The first is the yield curve. It has inverted four times over the past 35 years — in 1988, 1998, 2008 and 2019. Each time, tech stocks struggled into the curve’s inversion. After it, those same struggling stocks soared. Returns in tech stocks over the 12 months following a yield curve inversion have historically averaged about 30%. And they’ve never been negative.

So, yield curve inversions tend to spark tech stock melt-ups over the subsequent 12 months. We don’t think this time will play out any differently.

The second is the most recent rate-hike cycle. The last time the Fed hiked rates was between December 2015 and December 2018. Into that cycle — and immediately following the first hike — tech stocks struggled. Shortly after the first increase, though, the market became comfortable with the idea of quantitative tightening. And beaten-up tech stocks rebounded with vigor.

It looks like history is repeating itself today. Tech stocks have struggled into this rate-hike cycle. But ever since it started, they’ve been breaking out. It looks like we’re in the early stages of a repeat of 2017 — wherein the ARK fund basically doubled.

The third is the recent ARK breakout. The ARK fund is amid its biggest breakout ever. Previous pops like this happened in March 2016, January 2019, April 2020 and July 2020. Each one of those breakouts led to huge three-, six- and 12-month forward returns in hypergrowth tech stocks.

The only time the ARK Innovation ETF didn’t see huge returns following a jump like we’re seeing today was in December 2020. And that breakout was a melt-up on the heels of huge rally. That’s the exact opposite situation we have today (a breakout on the heels of a big downtrend).

Overall, even including the December 2020 “head fake,” big short-term breakouts in hypergrowth tech stocks like we’re seeing today tend to produce, on average, 35% returns over the next three months, 56% returns over the next six months, and 75% returns over the next 12 months.

Folks, when strung together, this data is tough to argue against.

There’s historical precedent for a post-yield-curve inversion tech market melt-up. There’s historical precedent for growth stocks outperforming in rate-hike cycles. And there’s historical precedent for big breakouts in tech stocks, producing even bigger returns over the subsequent months. And we have a hypergrowth tech stock chart that screams “huge rebound incoming!”

We’re sold. We think the next 12 months will produce some enormous returns in beaten-up hypergrowth tech stocks. And we’re ready to capitalize on those gains in our flagship investment research advisory Innovation Investor.

The Final Word

My team and I pride ourselves in employing a data-driven investment strategy.

That is, we don’t come up with a strategy based on instinct and then look for data to support it.

We perform complex and thorough data analysis, and then let that analysis guide our investment strategy.

Right now, our data analysis is telling us to get super bullish on washed-out hypergrowth tech stocks.

So, that’s what we’re doing. We’re backing up the truck and loading up on shares of stocks that we think can double in a hurry. And they could rally thousands of percent in the long run.

One such stock represents arguably the most promising tech startup in the world today.

It’s a biotech company founded by a bunch of MIT alumni. And it’s developing ground-breaking technology that could allow us to reshape the world as we know it.

The company’s stock price? Less than $5. That means today, you have a unique opportunity to get in on the ground-floor of what my team and I believe could be the emerging “Microsoft of Biology.

And I’ll tell you everything you need to know about this tiny company and the revolutionary technology it’s working on right now.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/hypergrowthinvesting/2022/04/one-chart-tech-stocks-massive-breakout/.

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