Expert Explains Reasons Behind ARK Invest’s Decision to Sell Tesla Shares
In a recent video update, finance guru Kevin Paffrath sheds light on Cathie Wood’s recent move to sell a significant portion of Tesla stock (NASDAQ: TSLA) within ARK Invest’s flagship ETF. Paffrath questions the rationale behind the decision, particularly given the stock’s recent strong performance. ARK Invest sold 56,000 Tesla shares to explore investments in Archer Aviation and other stocks.
Wood’s Ark Innovation ETF (ARKK) sold 56,425 Tesla shares on Tuesday, valued at $13.05 million based on Tuesday’s closing price. It is worth noting that this sale does not signify a strategy shift, as Tesla remains the largest holding in the ETF with a 14.6% weighting, valued at $891.89 million as of Wednesday morning. However, this marked the first sale of Tesla shares for the ETF since October 18, 2023. The sale occurred after Tesla’s stock reached a six-month high on Tuesday, driven by strong second-quarter delivery data.
Paffrath suggests that the decision may be attributed to Tesla hitting a critical resistance point that has historically led to pullbacks. He notes that when Tesla’s stock was around $170 to $180, volatility was low, indicating the potential for significant gains. Paffrath explains that even an inexperienced technical analyst would recognize Tesla’s current major resistance point, which could result in a temporary downturn. However, he emphasizes that while short-term volatility may occur, the long-term prospects for Tesla remain robust.
Furthermore, Paffrath brings attention to various economic indicators that Wood may be considering, such as slowing personal consumption, capital goods purchases, and rising jobless claims. He also mentions the increase in the 10-year treasury yield and the surging SOFR rate as potential signs of underlying economic stress, contributing to a more cautious outlook.
Paffrath also discusses the performance of Bitcoin, highlighting a bearish double top pattern and the potential impact of ETF flows. He acknowledges that Bitcoin’s price movements are concerning but notes mixed signals in the broader market, with extreme greed in market momentum.
Regarding Tesla specifically, Paffrath explains the potential for a short-term pullback due to its high relative strength index (RSI) and the possibility of a “buy the rumor, sell the news” scenario surrounding the robo-taxi announcement. He advises caution, mentioning that high interest rates and a potential downturn could influence Tesla’s performance in Q3.
Despite these short-term concerns, Paffrath maintains a long-term bullish stance on Tesla. He believes that once the stock surges beyond its current resistance level and successfully navigates Q3, new highs could be achieved. Paffrath underscores the importance of being prepared for market volatility and maintaining a long-term perspective.