MicroStrategy Stock's Big Swings Could Be Another Sign of a Looming Market Crash

Dow Jones11-23

The big moves in MicroStrategy stock are just another sign that things may not be quite right with the market.

MicroStrategy stock has had a heck of a rally. At Wednesday's peak of $473.83, shares had gained nearly 600% this year, and at its Thursday trading high of $543, it was up 700%, massive moves by anyone's standards. MicroStrategy, though, isn't building the chips that will fuel artificial intelligence, like Nvidia, or getting investors excited about expanding its AI business beyond game apps, like AppLovin, the only stock in the Russell 1000 to gain more than MicroStrategy this year. It sells convertible bonds and equity to raise money to buy Bitcoin. When Bitcoin goes up, MicroStrategy goes up -- and Bitcoin has been going up a lot.

The recent moves, however, have gotten worrisome. John Roque, 22V's technical analyst, notes that at its Thursday peak, MicroStrategy was 239% above its 200-day moving average -- before pulling back. The stock was "only" down 16% On Thursday, but it closed down 32% from its intraday high.

Microstrategy's moves bring back memories of the dot-com bust, Roque says. "I was there as NASDAQ was racing into its early 2000 peak, and MSTR is emblematic of the type of advance that occurred regularly for many stocks during that period," he writes.

Still, he is careful not to make too much of one stock's move on the overall market, even if he thinks MicroStrategy is a bubble. "I am not drawing a parallel between NASDAQ 2000 and this era," he writes. "I am merely saying that the price advance for MSTR qualifies as a price bubble for it."

And bubbles are scary things to trade -- I was there as well, trading stocks like Corning and Montana Power that got caught up in the internet frenzy, and Roque seems spot on in his analysis. And that means stocks can go up a lot more than any fundamental suggests it should, and fall just as quickly. So Roque is also careful to say that MicroStrategy may not have topped yet -- even if the risks seem skewed lower. "I am not saying that MSTR can't go up again -- because it can...anything can happen; and, perhaps most importantly, algos, retail, nor bloodlust are concerned with history," he writes. "[But] after such an advance it is usually the case to see the item -- after reversing as it did yesterday -- go through a deep and sharp setback. Perhaps to its breakout level." That would take MicroStrategy back to around $200, a nearly 50% drop from Thursday's close of $397.72.

Roque is reluctant to make the connection to the dot-com era, but I'm certainly starting to get those vibes from the market. The worries are there in Super Micro Computer's inability to get its filings in on time; in Warren Buffett's methodical reduction of Berkshire Hathaway's stakes in Apple and Bank of America; and in the premium valuation the S&P 500 now fetches. Maybe it's nothing, just the echoes of what was a formative time in my investing life.

Then again, maybe not.

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Comments

  • Reglloyd
    11-25
    Reglloyd
    MSTR, you have to understand their new Business model. To protect their underlying Business going forward, based on the other competitors & businesses out there. Leveraging their entire cash reserves & debt & to a yet another extreme , their own shares & taking on debt at zero or less than 1 % to buy Bitcoin. To protect their own cash reserves against Inflation. As the price of Bitcoin rises, MSTR's own market cap is growing in size. Ask yourself, what's is Michael Saylors end game ? Why is he actually doing this, after all their Board of Directors understand the end game, it's taking Risk & so far it's working pretty well. Is MSTR volatile?  Absolutely.  Why? Because you're paying a premium for buying a stock using Leverage. Personally, I don't believe we can
    • antitiReplyArtsy
      Thanks I have $T-Rex 2X Inverse MSTR Daily Target ETF(MSTZ)$ now. Hold for short term[love you]
    • antitiReplyReglloyd

      Thanks so much for your reply!!!! I’m bullish on bitcoin in the long term but I don’t think I can hold on during the correction so I close my position in Coinbase. Can I enter MSTR at about $300?

    • Artsy
      With how it is being short, there isn’t really a fair price.
    • Reglloyd
      1.Is Bitcoin going to increase in value over time?
      2.If you believe the price is going higher then you just hold the MSTR indefinitely , as it will follow the price of Bitcoin as it increases and gains more adoption going forward.
      3.How much more debt can MSTR take on to buy Bitcoin ? The answer may well be , way more than we can even comprehend if the price of Bitcoin keeps increasing .
      Based on the P/E it’s undervalued cause they are increasing their market cap by $500 million a day, that’s huge .
      So , what’s the best strategy to follow?
      If your conviction is similar to Michael Saylors then buy on a correction or when the market has cooled off a little , either way Bitcoin may well be the the best asset to hold indefinitely .
      Dollar cost averaging suggests we just buy when we have cashflow .
      Disclaimer: Please remember to do your own research , the info provided is for information purposes only and not an indication to buy any stocks or shares.
    • Reglloyd
      MSTR just raised a $3 Billion convertible note offering to buy more Bitcoin, & I do believe MSTR may well have another announcement so the stock is very Bullish , but remember we’re speaking about Bitcoin that’s just had a massive run at trying to reach $100k, & if there is a correction on Bitcoins side it could have a 30% correction which means MSTR stock price is going to be hit hard, which is pretty normal as they are pretty leveraged and the MSTR price could correct by a 2.5 or 3 x based on how they are taking on debt to Buy more Bitcoin, yes the debt is at zero percent that matures in 2029 & their other debt was at below 1 %, so just know if a correction comes, it’s going to cause a huge MSTR price correction. Now knowing all of the above ask yourself the following questions,

  • 9Jansen
    11-23
    9Jansen
    Thought provoking article. 
  • Appliance
    11-23
    Appliance
    Good article.
  • 股惑仔79
    11-23
    股惑仔79
    another fearmongering article, sponsored?
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