The MSTR stock has sold off recently and is hovering near its lowest level since February 24 this year. Strategy was trading at $121, down substantially from its all-time high of $540. This article explores some of the top reasons why the MicroStrategy stock is on the cusp of a strong bearish breakdown.
MSTR Stock at Risk as Bitcoin Forms Dangerous Patterns
Strategy’s business is directly affected by the performance of Bitcoin because of its huge holdings. While the company did not buy Bitcoin last week, it now holds 762,099 coins worth over $51.6 billion. A Bitcoin rebound will always push the value of its holdings higher and vice versa.
The three-day timeframe chart shows that the BTC price has formed a bearish flag pattern, which is made up of a steep decline followed by some consolidation. It has already formed the initial flagpole section and is now in the flag section.
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Most notably, Bitcoin has already moved slightly below the lower side of the ascending channel, confirming the bearish outlook. A closer look shows that the coin formed a similar pattern between October last year and January this year.
Bitcoin price has remained below all moving averages and the Supertrend indicator, a sign that bears are in control. Therefore, the stock will likely resume the downward trend, possibly moving to the year-to-date low of $60,393, its lowest level this year.
A drop below that level will point to more downside, possibly to the next important target level at $50,000. Such a move will lower the value of its Bitcoin holdings from $51.7 billion to over $38 billion.
MSTR Stock Price Has Also Formed Bearish Chart Patterns
The Strategy stock price has also formed bearish chart patterns. The three-day timeframe chart shows that the stock has moved to the 78.6% Fibonacci Retracement level.
It has also recently formed a death cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) have crossed each other. This cross happened on February 20th, meaning that the stock may continue falling.
The stock has remained below the Ichimoku cloud and the Supertrend indicators, a sign that bears remain in control this year. Also, the Relative Strength Index (RSI) and the MACD indicators have continued falling in the past few months.
Therefore, the most likely scenario is where the Strategy share price continues falling, potentially to the year-to-date low of $105, its lowest level this year. A drop below that level will point to further downside, potentially to below $100.
Strategy has some notable weak fundamentals, including the ongoing dilution of investors, with the amount of outstanding shares rising from below 80 million in 2021 to over 320 million today.
The company has also authorized another MSTR shares worth over $21 billion and hinted that it will continue selling shares in the foreseeable future.
Additionally, more investors continue to short the MSTR stock, with the short interest rising to over 12% from below 5% last year.
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