Find out how to Spot a Hedge Fund Lure: MicroStrategy's Dramatic Plunge

In early 2024, MicroStrategy (MSTR) turned a meme inventory favourite due to its shut ties to Bitcoin. In the event you rode the hype to its peak in March, hopefully you cashed out earlier than hedge funds started shorting it closely and going lengthy Bitcoin as a substitute.

How would you will have identified that hedge funds would start plunging the inventory? Like most merchants, you in all probability would not have direct entry to any such data earlier than it is too late. However you’d have oblique data from institutional buyers’ “footprints” out there.

Tracing the Influence of Hedge Fund Shorting in MSTR

Pull up your SharpCharts platform, kind MSTR within the image field, and have a look at its value motion in March. It peaked at $200 a share, which is when hedge funds started shorting the inventory.

Within the Overlays part beneath the worth chart, add the 200-day easy shifting common (SMA). Although MSTR’s intermediate-term pattern is down, its long-term pattern remains to be up, but it is presently being challenged.

Clues That Smack of Heavy Brief Promoting

Here is what I am taking a look at—my full chart (which you’ll observe or customise your self by clicking on this hyperlink).

DAILY CHART OF MSTR STOCK. The footprints of hedge fund exercise had been evident within the divergence between value and momentum.Chart supply: StockCharts.com. For instructional functions.

Have a look at the blue traces within the decrease panels that observe the contours of the worth motion, Relative Energy Index (RSI), and the Chaikin Cash Circulation (CMF). You could not have had data of hedge fund shorting exercise, however the traces of their actions are evident within the divergence between value motion and momentum.

The bounce from $49 to $200 in simply over a month screams meme momentum. However what momentum? The RSI tells you that these three consecutive increased swing factors from the tip of February to the March peak are overbought, with momentum dropping off. The CMF additionally reveals that purchasing strain is declining as the worth retains shifting increased.

The Ichimoku Cloud is plotted to measure the intermediate-term pattern and momentum. As you may see, the primary bounce after the March decline (see orange circle) was met with shopping for on the 61.8% Fibonacci Retracement line. The second and third passed off on the 200-day SMA.

Regardless of the volatility, the intermediate pattern is sideways, and the momentum is flat. For the long-term uptrend to carry, the worth wants to remain above the 200-day SMA—and that is being examined.

Closing Bell

Here is the takeaway: Some elementary developments aren’t at all times straightforward to identify. Most buyers would not have caught sure hedge funds’ short-selling strikes in MSTR inventory. That is the place technical indicators save the day. On this case, it was all about divergence. It’s also possible to depend on different indicators to catch traits earlier than they’re apparent. Use the StockCharts instruments listed within the Member Instruments part of Your Dashboard to remain forward with well timed, actionable insights.

Final however not least, you should definitely save MSTR in one in all your StockCharts ChartLists.

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