On November 21, 2024, Citron Capital shorted MicroStrategy Inc. (MSTR). What made this confrontation significantly electrifying was the conflict between two titans: Citron, a legendary brief vendor, and MicroStrategy, arguably the strongest inventory of 2024.

Why did Citron brief MicroStrategy? Citron referred to as its $91 billion valuation a reckless Bitcoin bubble. MSTR started shopping for Bitcoin in 2020; it at present owns 1.7% of the worldwide Bitcoin provide and a few analysts anticipate the corporate to personal 4% by 2033. Citron seen MSTR’s Bitcoin hoarding as a leveraged gamble that might implode if Bitcoin falters.

To see the influence of MSTR’s crypto commerce, have a look at the correlation between the shares and the crypto on a weekly chart.

FIGURE 1. WEEKLY CHART OF MICROSTRATEGY. The Correlation Coefficient within the backside panel exhibits how MSTR strongly correlates with Bitcoin. MSTR has additionally outperformed the S&P 500 ($SPX).Chart supply: StockCharts.com. For academic functions.

The stellar rise in MSTR from a low of $43-and-change in January to a excessive of $543 in November has been something however easy and regular. MicroStrategy is a enterprise analytics firm that gives publicity to each AI and Bitcoin (on account of its heavy accumulation). It is like two trades in a single. StockCharts’s Correlation Coefficient indicator exhibits how correlated MSTR is to $BTCUSD. You’ll want to regulate this: if Bitcoin rises or falls, it would doubtless have an effect on MSTR’s inventory value.

You can too see MSTR’s relative efficiency in opposition to the S&P 500 ($SPX). At present, it is outperforming the broad index by over 300%. Overvalued and dangerous? That is Citron’s take, and you’ll see the plunging impact of Citron’s thesis because it took motion out there.

Nonetheless, MSTR nonetheless ranks inside the Prime 10 of StockCharts Technical Rank (SCTR) report, its technical energy holding its measured place regardless of the massive brief and the danger it entails.

FIGURE 2. SCTR REPORT ON TUESDAY, NOVEMBER 26, 2024. MSTR is fourth from the highest, with a SCTR rating of 99.5.Picture supply: StockCharts.com. For academic functions.

If this stays true, would possibly the inventory expertise a bounce, attracting potential bulls to enter positions at perceived low cost ranges? In that case, the place? Let’s shift to a day by day chart.

FIGURE 3. DAILY CHART OF MSTR. Observe how the swing factors correspond cleanly with the Fibonacci Retracement strains.Chart supply: StockCharts.com. For academic functions.

Drawing Fibonacci Retracement ranges from the August low to the November excessive, you may higher contextualize the pullback to see the place bullish buyers could also be in search of entry factors. Observe that I circled every stage to spotlight every potential help space.

One place that patrons could also be in search of an early bounce is on the swing excessive level proper above $380, which coincides with the Fib 38.2% retracement. Whereas some patrons may need jumped in, that stage could also be too aggressive an entry as the worth is seeking to break under it. The following potential help ranges are the swing low between $318 and $320, which converges with the Fib 50% line, and, under that, the October swing excessive close to $267, which is near the 61.8% Fib retracement stage.

Ought to any of those factors set off a bounce, test quantity and shopping for stress as a possible indicator for institutional help. Proper now, should you have a look at the Chaikin Cash Stream (CMF), you may see that sellers are firmly answerable for the inventory (see inexperienced circle). You’ll want to see that scenario reverse, with the CMF line crossing above the zero line.

Your Subsequent Motion Steps

Whereas watching these ranges, do the next:

• Add MSTR to your ChartLists. This ensures you may have the chart useful with all key ranges when monitoring it.
• Set a value alert for when the worth crosses under $323. As soon as it crosses under this stage, put together for a possible bounce someplace between $318 and $320. You would additionally set a second alert for when the worth crosses above $375, the 38.2% Fibonacci retracement stage. This could possibly be an entry level for a possible upside transfer.
• Additionally, regulate the CMF; if there is a bounce, you will wish to see patrons taking management of the market.

This could offer you ample time to watch and reply, assessing whether or not the technical context indicators a purchase or a wait-and-see. You can too test the basic story to see what’s taking place with the inventory, significantly if the technicals stay fuzzy.

On the Shut

MicroStrategy’s meteoric rise in 2024, fueled by its double play on Bitcoin and AI, has made it a magnet for each bulls and skeptics. Whereas Citron’s brief place underscores bearish issues about overvaluation and leverage danger, the inventory’s technical energy and correlation with Bitcoin proceed to draw bullish consideration. Control help ranges and for any shift between shopping for/promoting momentum. The technical ranges above ought to map out the important thing areas to look at and key technical occasions to anticipate.

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your personal private and monetary scenario, or with out consulting a monetary skilled.