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.