MicroStrategy Steals Nvidia's Thunder as Stock Goes Parabolic
This bitcoin-focused stock has seen some major gains but it could be time for traders to adjust their strategies.
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Today will be all about Nvidia NVDA. Unless it’s not.
It’s difficult to ignore the action in MicroStrategy MSTR and bitcoin as well.
Less than two months ago, I paraded MicroStrategy out as an election play, one I thought could perform well over the next six to 12 months. I should have said six to 12 weeks. Never did I imagine the share would rise $300 in six weeks.
Along the way, I reiterated the strategy of taking profits and using trading stops. If you are still in the stock, even with a small amount, congratulations, you were more patient than most of the traders I know, including myself.
But we’re entering an area where you should re-examine that position once again. I’m not pounding the table, screaming, “Sell! Sell! Sell!” But I will say it is time to adjust your trailing strategy aggressively.
MicroStrategy has gone parabolic. The stock has completely moved outside of the orbit of its 10-day and 21-day exponential moving averages (EMAs). The stock's price in relation to its Bollinger band (20 days, two standard deviations) has doubled in 10 days and approaches triple-digit Bollinger band width. The Bollinger band width has crossed above 100 once in 2024 already. That was back in March, right before MSTR fell 50% over the following six weeks. It happened a second time back in 2022 as well. That happened shortly after the stock fell 68%. After a quick bounce, the stock fell back to lows and struggled for six weeks.
In other words, a stretch this wide in the Bollinger band width has not been associated with positive stock movements in the six weeks following a peak.
So, what to do now?
Keep things simple. I would use the prior day’s low as a stop. If that feels too defined, consider using the lower of the prior day’s or low or the closing price from two days prior.
As far as a short position, well, that’s not my approach to parabolic moves. It requires me to call a top, and not many folks can do that accurately. In my experience, you’re more likely to get squeezed out before a reversal takes hold. There may be a time for a short, but the odds will favor waiting until the stock has already reversed rather than trying to call the top.
At the time of publication, Byrne had no positions in any securities mentioned.
