Trading MicroStrategy stock is an exercise in discipline for investors.
Shares of the bitcoin-adjacent play have risen more than 1,000% in 2024, surging to a peak of 543 per share in today's trades. While the company is nominally an enterprise software platform and provider, it has gained a cult following for being one of the largest corporate shareholders of bitcoin, plowing sales of its common stock into ever-bigger buys of the cryptocurrency.
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But MicroStrategy stock's big bets mean investors need greater discipline, says Scott Bennett, founder of InvestWithRules.com and IWR Advisors. "This is how bubbles start," Bennett told Investor's Business Daily's "Investing with IBD" podcast. "And I would say this is where I get a little bit more cautious."
The Warnings In MicroStrategy Stock's Recent Run
Bennett says investors need to know what they're buying into when considering MicroStrategy stock. It all comes down to discipline, knowing not to buy into stocks that are extraordinarily extended from the short-term risk. "What I don't want for investors is to buy and have no self-discipline, because that's where you get absolutely squashed at some point," said Bennett.
MicroStrategy stock remains extended from its moving averages and is exhibiting signs of a possible climax top. On Wednesday, MicroStrategy shares saw lows of the day remain above highs on Tuesday, creating an "exhaustion gap" that signals huge demand. On Thursday, MicroStrategy was staging an outside, downside reversal in the heaviest volume of the run.
A downside reversal off a stock's highs after a vertical move is a sell signal for traders to take at least partial profits. Parabolic chart patterns mean selling 10% to 15% of a position into strength is a prudent step for investors to take.
MicroStrategy saw a 27% gain this week so far, even with Thursday's downside reversal. MicroStrategy recently announced it had acquired another 51,780 bitcoins for around $4.6 billion. MSTR stock has a Composite Rating of 76.
MicroStrategy stock has skyrocketed as bitcoin rockets toward $100,000. Most of the bullishness reflects optimism over Donald Trump's election win. Markets expect Trump to usher in more crypto-friendly policies and cut back regulation.
MicroStrategy Stock's Ties To Bitcoin
Bennett says MicroStrategy stock is uniquely tied to bitcoin, which creates a volatile ride not suitable for all investors. "We've all been there, we've either lost great money and it's painful and you're stressed out, it impacts your life and you're checking your phone and it impacts your relationships," he said. "Or you've made great money and given way too much of it back, and then you overanalyze it and get frozen."
"I just genuinely want it to be a smoother ride (for investors)," said Bennett. He warns investors to remain disciplined and respect their sell rules, particularly considering volatile assets like cryptocurrency plays. "At some point this is going to have a hard landing," he said. "The question is, what's your plan."
Learn how to manage risk with Scott Bennett by tapping here.
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