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How to Protect your Wealth by Investing in AI Tech Stocks

Micro Strategy Bubble Mania

Currencies / cryptocurrency May 10, 2024 - 09:57 PM GMT

By: Nadeem_Walayat


Micro strategy went nuts Friday ending the session at $1106 which prompted my early Monday Morning Market brief warning that MSTR was primed for a huge pump and dump, so get ones limit orders in place to capitalise on what could turn into an epic first few days of the week, where I imagined we could even reach something like 1296 before the bubble popped. However reality turned out to be even crazier and more volatile.

MSTR pumped all the way to $1360 and more importantly gave us 3 bites at the cherry above $1300. So even if one had not been prepared beforehand for such an epic run MSTR gave us several hours to regroup and enter additional market orders to reduce ones exposure ahead oft the expected dump which to date has seen MSTR trade to a low of $1030, that's a peak to trough drop of near 25%! With likely more downside to come. Once the dust settled my position in MSTR has reduced from 79% invested as of Fridays close to currently stand at 53% invested. it may all look easy in hindsight but definitely not ahead of the event, and neither is it going to be easy going forward as we are going to see huge volatility in response to which all one can do is have one limit orders already in place in attempts to capitalise on such volatility as much as is humanly possible. It is not going to an easy ride but as long as one banks profits as one goes along then folks won't be left staring at the likes of MSTR $300 once the dust settles as I did detect some FOMO kicking in at $1300 with comments such as MSTR could fly to $3000 as it did in 2000 to which I replied "if you think like that you'll still be holding your MSTR when its next trading at $300!"

There is a great deal of FOMO baked into the current MSTR price as I mentioned in Mondays market brief where using a simple metric of MSTR X80 tells you how extreme the current price is. For instance MSTR trading at $1360 equates to discounting a Bitcoin price of $108k! Completely unsustainable and hence my warnings to not get carried away by FOMO as it is not going to last and it didn't!

The BTC divided by MSTR chart illustrates just how extreme the price action had gotten.

BTC / MSTR fair value is 80 so roughly a reading of 90 is CHEAP relative to BTC whilst a reading below 70 is EXPENSIVE, Fridays reading which prompted me to send out the market brief was 57! And the FOMO rally took things to a new extreme of 46! So despite Bitcoin pumping to $69k on Monday MSTR literally fired it's booster rockets through $1200 all the way to $1360 as I commented at the time we are looking at a potential Chernobyl nuclear meltdown! The value as of last close is 60, so MSTR at $1051 is still at an extreme, let alone the after hours quote of $1140.

Even though it is possible for MSTR to have another FOMO driven push higher along with BTC to over $70k, however as Tuesdays dump to $1030 illustrates it would likely prove temporary.

One thing is clear, MSTR will TOP before Bitcoin because it's price will be juiced to far beyond what's rationale.

In terms of how high MSTR could go during this bull market depends on how early MSTR tops BEFORE Bitcoin, so the starting point is to have a target for Bitcoin which as per my October analysis is for a base case of $134k which as the following table illustrates I would expect MSTR to top out long before Bitcoin gets to $134k, probably around $102k at approx $2100 following which many will be puzzled as to why MSTR keeps falling whilst Bitcoin keeps marching higher, given that they had just FOMO 'd into MSTR on break above BTC $100k.

Of course if Bitcoin tops out earlier, say at $100k or later at say $170k then that will obviously play into what MSTR does, thus one needs to keep an eye out on the fair value price for MSTR during the bull market where the greater the deviation against fair value the greater the bubble MSTR will find itself in i.e. at BTC $102k the MSTR bubble price of $2170 would be 70% above fair value. Conversely should MSTR dump below fair value and the Bitcoin bull market was deemed to still be in play then that would present an opportune time to accumulate MSTR as was the case a few weeks ago when MSTR traded below $500, whilst BTC was hovering around $43k.

So do bare in mind that during the next correction MSTR could trade through fair value i.e.BTC / 80 and especially be careful of spikes such as Mondays that reversed the following day by 25%! MSTR is a very volatile stock! as the moon shot to $1360 illustrates, so whatever I imagine it can do it's probably going to out do it both to the UPSIDE AND DOWNSIDE!

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By Nadeem Walayat

Copyright © 2005-2023 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

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Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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