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Buying or Shorting MicroStrategy? Technical support & resistance

July 1, 2021 21:04
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This post will talk about the latest important news connected with MicroStrategy Incorporated and where the price of this stock could move in the upcoming period. MicroStrategy Incorporated shares have weakened from $1315 below $500 since February 2021, and the current share price stands around $668. This correction could be the beginning of a much larger downturn. The company's fundamentals continue to improve, but with a 6.08 billion USD market capitalization, this company/stock is still too expensive, in my opinion. MicroStrategy stock is in correlation with Bitcoin, and many analysts agree that there are plenty of reasons to be bearish on MicroStrategy at the current stock price. MicroStrategy runs a fairly small enterprise analytics business, but since late last year, it has been all about its investments in Bitcoin.

The company's capital allocation strategy is fully dependent upon its belief that Bitcoin is ready to soar, and it is important to mention that the company currently owns around 92k Bitcoins, for which it paid a total of $2.23 billion. Bitcoin has stabilized now above the $35000 level, but a break below $33000 support would indicate that Bitcoin could probably test the $30000 support again. It is very hard to measure the real fundamental value of this cryptocurrency and predict where Bitcoin's price will go in the long term; still, the risk of another decline is still not over.

“Margin trading helped retail traders gain crypto exposure, but as we saw, digital currencies suffered a painful fall. The cryptocurrency crash highlighted the risks associated with using leverage to trade assets, and retail traders should understand that leverage can accelerate a rally but also a fall,” said David Madden, market analyst for Equity Capital.

Scott Minerd, an analyst from Guggenheim Partners, said that Bitcoin could retest the $20,000 support level, and if this happens, MicroStrategy shares could be at much lower price levels. On the other side, the Federal Reserve might need to hike the interest rate in the upcoming months, inflation has risen sharply, and it's going to stay high for a while. If FED decides to tighten its ultra-loose monetary policy, the Nasdaq Composite could fall below 14,000 points which would negatively influence MicroStrategy shares. The risk aversion will likely prevail in the upcoming weeks, and probably it is not the best moment for buying shares of MicroStrategy Incorporated.

Technical analysis
MicroStrategy's shares are trading down more than 40% from their recent highs registered in February 2021; still, the risk of further declines is not over yet. With the trend still clearly pointing to the downside, we can expect that the price could test the current support level at $600 again. One of the easiest ways to buy or short MicroStrategy shares is through a margin trading platform. Many brokers allow this type of trading, with margin trades allowing investors to “borrow” money from a broker to make a trade. It's important to remember that there may be a leverage factor that could either increase your profits or losses. It's not a good idea to hold a short position for long periods or to leave an open position with no stop-loss order.

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microstrategy graph

I marked current support and resistance levels on the chart above to help traders understand where the price could move. The more often price tests a level of resistance or support without breaking it, the stronger the resistance or support area is. MicroStrategy has been a great performer during the first forty days of the 2021 year, and if the price advances again above $800, the next resistance could be located around $900 or even $100. The current support level is $600, and if the price breaks this level, it would be a “SELL” signal, and we have the open way to $500. If the price drops below $500, which represents very strong support, the next target could be located around $400 or even below.

Conclusion
MicroStrategy runs a fairly small enterprise analytics business, but it has been all about its investments in Bitcoin since late last year. The company's capital allocation strategy is fully dependent upon its belief that Bitcoin is ready to soar, and it is important to mention that the company currently owns around 92k Bitcoins, for which it paid a total of $2.23 billion. Scott Minerd, an analyst from Guggenheim Partners, said that Bitcoin could retest the $20,000 support level, and if this happens, MicroStrategy shares could be at much lower price levels. The current support level is $600, and if the price breaks this level, it would be a “SELL” signal, and we have the open way to $500.