Today we’ll walk you through a trade idea with Marathon Digital Holdings Inc. (NASDAQ: MARA) that could deliver up to 58% returns in the next 3-6 months.
Marathon Digital Holdings, Inc. operates as a digital asset technology company that mines cryptocurrencies with a focus on the blockchain ecosystem and the generation of digital assets in the United States. The company was formerly known as Marathon Patent Group, Inc.
Analyst Ratings
According to TipRanks, three analysts are offering 12-month price targets for MARA in the last 3 months. All three analysts rate it a buy, and none have a hold or sell rating. The average price target offered by these analysts is $48.00, which is a 30.58% upside from current levels.
Source: TipRanks.com
Recent Analyst Ratings | Source: TipRanks.com
Why MARA is trending?
Marathon Digital Holdings currently operates 19,000 miners, with a further 100,000 machines slated for deployment over the next 12 months.
The price of bitcoin has been surging recently due to rumors that Amazon could begin accepting the cryptocurrency at the end of this year. This has proven to be a major tailwind for MARA, as the company had almost $200 million in Bitcoin on its balance sheet by the end of Q2. PayPal Holdings have also launched crypto buying and selling in the UK, starting this week.
China’s crackdown on Bitcoin mining has also translated to a massive opportunity for MARA. It is estimated that over 50% of the Bitcoin mining industry’s hash rate has now been removed with many Chinese operations out of the picture. This has effectively increased the volume of BTC that Marathon Digital can mine, translating to higher revenue.
In early August, the company contracted for the delivery of 30,000 additional Bitmain Antminer S19j Pro mining computers. The $120.7 million purchase meant that the company paid just over $4,000 dollars per unit, much lower than the machine’s previous cost.
Hedge Funds had also increased holdings by 178.4K shares last quarter. A mandatory SEC filing dated June 30, 2021, shows that Blackrock, the world’s largest asset manager with $9 trillion in assets, has taken a significant 6.71% stake in Marathon Digital Holdings.
However, there are also risks associated with MARA. Bitcoin is a closed system. There will only be a maximum of 328.5k + transaction fees of bitcoin mined per year. In fact, this will reduce in 2024 with the next “halving”.
Any decline in the volatile cryptocurrency market is expected to have substantial negative consequences. For instance, at the end of Q1, the company held approximately 5,324 bitcoins, each of which had a market price of approximately $56,135, translating to $300 million. But, by the end of Q2, despite increasing the number of bitcoins to 5,784 bitcoins, the fair market value of Marathon’s bitcoins held was just above $200 million, as the market price of each bitcoin had declined to $34,856.
These are also some concerning figures in the company’s earnings report. Marathon Digital Holdings had recorded over $29 million in revenues in the second quarter which is a significant increase over the previous period in 2020. Yet, the company recorded a net loss well in excess of $108 million in Q2 of this year. The company’s previous 10-Ks and 10-Qs also show paragraphs of legal claims and shareholder class actions.
Here’s how to trade the high-risk-high-reward MARA now.
MARA Chart
On analysis, there are multiple bullish indications on the weekly chart of MARA.
#1 Cup and Handle pattern Breakout: The weekly chart shows that the stock was forming a cup and handle pattern and has currently broken out of it. This pattern is marked in the chart below in pink color. A cup and handle pattern is a consolidation and breakout pattern. A breakout from this pattern indicates that the stock may move higher. Typically, stocks retrace to the breakout level again before continuing the upmove.
MARA – Weekly Chart
#2 MACD above Signal Line: The chart shows that the MACD (light blue color) has currently crossed above the MACD signal line (orange color). This typically indicates a bullish setup.
#3 Above MAs: The stock is currently above both 50-day as well as 200-day SMA, indicating that the bulls are in control.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), and ADX is currently rising from below both (+DI) and (-DI). All these points to a possible upmove in the near-term.
#5 Strong RSI: The RSI is above 50 and moving up in the weekly chart, indicating the strength of the current upmove.
Below is the bullish and bearish play for MARA.
Recommended Bullish Trade (based on the chart)
Buy Levels: If you want to get in on this trade, the buy level for MARA is in two scenarios. These are marked as green color dotted lines in the daily chart.
- Buy Level #1: You can purchase the shares of MARA above the price of $38.00.
- Buy Level #2: You can purchase the shares of MARA above the price of $52.00.
Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.
TP: Our target prices for various buy levels are as follows
- The target prices for Buy Level #1 ($38.00) are $52 and $60 in the next 3 to 6 months.
- The target prices for Buy Level #2 ($52.00) are $60 and $70 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at the following levels.
- The stop loss for Buy Level #1 ($38.00) is $32.00.
- The stop loss for Buy Level #2 ($52.00) is $47.50.
Note that the stop loss is on a closing basis.
Target Upside: Our target potential upside is 15% to 58% in the next 3-6 months.
- Entry at Buy Level #1 ($38.00): For a risk of $6.00, our first target reward is $14.00 and the second target reward is $22.00. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at Buy Level #2 ($52.00): For a risk of $4.50, our first target reward is $8.00 and the second target reward is $18.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider: The stock may reverse its overall trend if it breaks down from the near-term support level with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Recommended Bearish Trade (based on the chart)
In case the stock breaks down from the near-term support level with high volume, it would point to an upcoming short-term correction. In that case, below are the entry level, stop loss level, and target prices.
Sell Level: You can take short positions on MARA below the price of around $30.00. This sell level is marked as a red color dotted line in the chart.
Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.
TP: Our target prices are $25 and $20 in the next 3-6 months.
SL: To limit risk, place a stop loss at $32.50. Note that this stop loss is on a closing basis.
Our target potential downside is 17% to 33% in the next 3-6 months.
For a risk of $2.50, our first target reward is $5.00 and the second target reward is $10.00. This is a nearly 1:2 and 1:4 risk-reward trade
In other words, this trade offers nearly 2x to 4x rewards compared to the risks.
Risks to Consider: The stock may reverse its overall trend if it breaks upwards with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
— Trades of the Day Research Team
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