Summary As expected, the Nasdaq 100 has rallied over 20% from April 7th lows, leading to directional uncertainty and potential sell pressure in May. There are likely to be solid opportunities to sell the market in May, but I would still caution against shorting MSTR through MSTZ. Bitcoin's technical setup actually looks quite good in my view, and that means MSTR may continue to rally despite my concerns about MSTR common stock. Despite not being bullish on Strategy common stock at this time, I would still avoid the T-Rex 2X Inverse MSTR Daily Target ETF. On April 11th, I wrote the following in my coverage of the ProShares UltraShort QQQ ETF (SQQQ) for Seeking Alpha: If history is a guide, the performance of the Nasdaq on April 9th is potentially a strong indication that there are further declines coming in stocks, particularly the kind of high-flying tech stocks that are in the Nasdaq. To be clear, I do actually think we are likely to experience a meaningful rally in the US equity market for the remainder of April. Bold above is my emphasis for today's submission. That turned out to be a very good call, and hopefully those who were long SQQQ when that piece went live reconsidered and avoided the 26% loss that ensued since in that fund. Now, bearish ideas are getting very interesting again. In this article, we'll look at some broader market charts, the setup in the Bitcoin ( BTC-USD ) chart, and why despite not being bullish Strategy ( MSTR )( STRK )( STRF ) common stock at this point in time, I think the T-Rex 2X Inverse MSTR Daily Target ETF ( MSTZ ) is still a massive avoid. Bearish Technicals? With broader market indexes like the Nasdaq 100 having now rallied over 20% from intraday lows on April 7th, a logical question from traders might be, how do we play it from here? At this point, the large gaps lower from the early to mid-April sessions have all been filled. Rather, the one or two unresolved gaps that I see on the chart today have been on the upside: Shortable Bear Market Rally? (TrendSpider) Perhaps adding credence to the idea that these upside gaps in the Qs could be filled by sell pressure in May, the Nasdaq 100 rallied right into its 200-day moving average during the May 2nd session before modest profit-taking began into the close. As I see it, we're now in a stage of directional uncertainty for the markets and seasonality indications aren't much help: QQQ Seasonality (TrendSpider) Going back the last 26 years, the Q's have a mean return in May of 0.93% and a positive return rate of 59%. More recently, May has been a terrific month for the Nasdaq 100 and has returned an average of 2.6% over the last 10 years: QQQ Seasonality (Seeking Alpha) May 2024 returned 6.2% and May 2023 returned 7.9%. Given the surge the market was on through the end of April, I would not expect a 6 or 7% return in May to happen again. Rather, I'm of the view that this rally is already getting extended and a ticker like SQQQ could be one to explore for tactical trades in May. Yet, despite my shorter term bearishness, I don't think all short products are created equal and MSTZ is one that I would avoid entirely. MSTZ Is a Capital Incinerator Expense Ratio: 1.05% AUM: $168.8 million Inception: 9/17/2024 Issuer: Tuttle Capital Management The T-Rex 2x Inverse MSTR ETF is exactly what it sounds like; it's an actively managed fund that is designed to double the returns of MSTR stock but in the opposite direction. So if MSTR shares increase by 5% in a single session, a 2x inverse ETF would go down by 10% if structured properly. Funds like MSTZ are rebalanced daily and are absolutely not designed to be held long term. Rather, a product like MSTZ should really only be held for short periods of time; days or weeks at most. Due to the daily re-balancing, the long-term total return of the fund will be negative even if shares of MSTR decline in value. Consider the loss of capital that a shareholder of MSTZ would have experienced going back to inception - which is literally less than 8 months: Data by YCharts If a trader bought $10,000 worth of MSTZ on inception day and held it all the way through May 2nd, that person would have less than $100 left. To be sure, the 200% positive return in MSTR since the inception of MSTZ is a big contributing factor to MSTZ's 99% capital destruction. However, even over a much shorter period of time, holding MSTZ can lead to catastrophic losses: Data by YCharts The chart above shows the total return of both MSTR and MSTZ from March 25th through April 22nd - just 18 sessions. This is not an arbitrary period of time, it shows the return of MSTZ starting right before a 31% decline in MSTR that reversed higher back to the starting point of the stock. Over that time frame, MSTR is essentially flat while MSTZ is down nearly 40%. To be sure, there was a very brief period where MSTZ holders could have locked in an 80% gain, but it lasted exactly one session and was immediately erased in a single session on April 9th. The point is, these are incredibly dangerous products and should probably be avoided by most traders. Bitcoin and MSTR In spite of the obvious danger in holding the fund for an extended period of time, is there a case to be made for buying MSTZ today? I'm not bullish Strategy common stock and I made my case for that in a recent piece following Q1-25 earnings: I want MSTR shareholders/fans to actually think about this for a moment; if cash flow from the underlying business can't meaningfully fund the dividend required for STRK and STRF shareholders - and we know that it already can't - then that capital has to either come from selling Bitcoin or from raising fresh investment capital to pay previous investors. The latter sounds a lot like a Ponzi scheme Despite the clear issues I have with Strategy's approach to Bitcoin domination, I would actually still caution against buying MSTZ simply because MSTR is such a wild card. Yes, MSTR continues to trade at double the value of its Bitcoin holdings. Yes, MSTR has clear dilution risks with an additional $21 billion common stock ATM just announced. And yes, MSTR is still running an old software business at an operating loss six years running. All of that is true. But in my view, MSTR is way too dangerous to short because it's still likely going to go as Bitcoin goes. And Bitcoin actually looks pretty good right now in my view: BTC Daily Chart (TrendSpider) Bitcoin has broken out over all key MAs, broken out over 3.5-month trend-line resistance, and both broken and back-tested horizontal resistance at $93k. My biggest concern about Bitcoin at this point is any residual correlation to the Nasdaq 100. That said, we might be seeing the beginning of what, I think, will be a relatively brief rotation trade from Gold to Bitcoin. Given that, trying to short MSTR through MSTZ is still too dangerous, in my personal view. Closing Summary Funds like MSTZ are long term capital incinerators. The proof is in the pudding here, with a total return loss of over 99% in less than 8 months through MSTZ. This is not a fund that should be held for longer than a few days - weeks at most. The timing on 2x leveraged ETFs has to be impeccable to work out, and that is doubly true with leverage on stocks that are seen as leverage on something like Bitcoin. With MSTZ, traders are essentially getting leverage on Bitcoin, but they're doing it in a way that bets against BTC. There will be points when that works really well and points when it works really poorly. Could the Bitcoin bull story be closer to the end than the beginning? I'm certainly not going to say that's impossible. But it's also not something that I'd bet on either. For traders, 2x leverage ETFs can work really well, and I've used them several times in the past. There is a time and a place for them. But in my view, MSTZ is a major avoid both now and longer term.
