To The Moon

Summary

• MicroStrategy exhibits high volatility, with significant price swings and a history of failing to sustain rallies, making it risky for conservative portfolios.

• Recent earnings reports showed revenue declines and net losses, missing consensus estimates and highlighting potential long-term growth concerns.

• Despite challenges, positive factors include strong growth in subscription revenue and substantial bitcoin holdings valued at nearly $14.3 billion.

• MSTR is testing major resistance levels; a break above $200 could signal a bullish breakout, but downside risks remain if key support levels fail.

Cryptocurrency market, financial data and candlesticks, internet banking

ismagilov

When I last wrote about MicroStrategy (NASDAQ:MSTR) on May 17th with "MicroStrategy: Dangerous Stock, Sell All Rallies", the stock was in the process of making forceful moves in the bullish direction, and share prices had experienced massive gains of nearly 56.9% in just 16 days. Given the stock's obvious history of substantial downturns following surging price rallies, I felt that the balance of the evidence (from a risk-reward perspective) warranted a "strong sell" rating for the stock. After moving to new highs at $174 per share, the stock quickly reversed in the downward direction and lost over -30.86% over the next seven weeks:

MSTR: Price Behavior Shows Major Declines

MSTR: Price Behavior Shows Major Declines (Income Generator via TradingView)

Interestingly, very similar price moves in MSTR share prices had occurred a short time prior and then again a short time later. Specifically, the stock dropped by -49.5% during the trading period spanning from March 27th to May 1st, and the stock dropped by -44.29% during the trading period spanning from July 29th to August 5th. Clearly, this pattern of behavior suggests that the stock has recorded a broad inability to maintain rallying price moves for significant periods of time and this outlook largely formed the basis for my original assertions that a bearish stance should be adopted whenever MSTR generates substantial rallies during relatively short time frames.

MSTR: Prior Failures to Sustain Bullish Rallies

MSTR: Prior Failures to Sustain Bullish Rallies (Income Generator via TradingView)

With all of this in mind, it is probably not difficult to understand why some investors might consider MSTR stock to be a highly volatile asset that may not be suitable for all investment portfolio types. Furthermore, MicroStrategy's most recent earnings release left quite a lot to be desired, as the company reported revenue declines of -7% (at $111.4 million) and net losses of $102.6 million (which marked a sizable turnaround from the net income figure of $22.2 million that was recorded during the same period a year earlier). Additionally, the positive Q2-2023 EPS figure of $1.68 also reversed sharply to show losses of $5.74 per share in Q2-2024.

Q2 2024 Earnings Figures

Q2 2024 Earnings Figures (MicroStrategy Earnings Presentation)

Overall, MicroStrategy's quarterly revenue figure fell short of consensus estimates of $122 million by nearly -9%, and longer-term revenue projections for the company indicate annualized growth rates of just 4.2% over the next three-year period (even while consensus estimates for the software technology sector in the United States call for annualized growth rates of roughly 12% during the same period of time).

According to Phong Le, MicroStrategy CEO, there were several positives that should also be noted:

We are extremely optimistic with the improved understanding of bitcoin and the increasing support for the ecosystem from bipartisan politicians and institutions... We also continue to see increased global adoption of our cloud-powered BI and AI software, achieving another quarter of strong double-digit growth in both subscription revenue and subscription billings.

Most important, however, are the company's bitcoin holdings, which rose to 226,500 (purchased at an average price of just over $36,800 per coin). With BTC-USD currently trading at a valuation of $63,126.50, this means MicroStrategy's current holdings are worth just under $14.3 billion:

MicroStrategy Bitcoin Holdings

MicroStrategy Bitcoin Holdings (MicroStrategy Earnings Presentation)

Additionally, MicroStrategy's total bitcoin holdings accumulated at a rate that was faster than the assumed diluted share count (5.6% versus 1.8%):

MicroStrategy: Use of Leverage

MicroStrategy: Use of Leverage (MicroStrategy Earnings Presentation)

On the daily time frames, it has become quite clear that the market has responded favorably to these developments, and MSTR is currently in the process of testing major long-term resistance levels. Specifically, the stock's recent rallies from the September 6th lows of $113.69 have created a severe turn in upside share price momentum that has generated near-term highs of $198.49. At this stage, the real question will be whether or not the recent upsurge in share price momentum will lead to a convincing longer-term break of the stock's all-time highs near $200. Of course, this is a stock that has generally been characterized as an asset that is highly volatile and often susceptible to false breakouts (in both bullish and bearish directions). So, it must be understood that even if we do see share prices touch new highs above the $200 mark, we could still be in store for violent downside reversals that have the potential to take investors off-guard.

MSTR: Near-Term Resistance Zone

MSTR: Near-Term Resistance Zone (Income Generator via TradingView)

Thus far, we have already seen a bit of a rejection from these psychological levels near $200 per share. Specifically, a triple-top resistance area has formed near $198.50 and the most recent rejection from this area has sent the stock to test near-term lows of $186.80 (on October 9th). Interestingly, this price low aligns quite closely with the prior $185.32 support zone and, if the stock is able to form a base in this area, it seems quite likely that the stock will be able to break to new all-time highs relatively soon. In order to reverse this bullish outlook, I would need to see share prices break below the 23.6% Fibonacci retracement of the upward trending move from the September 6th lows (at $113.77) to the October 8th highs (near $198.50), which is located just above the $179 level. If this support zone is breached to the downside, I would start to adopt a consolidative (sideways, neutral) outlook and wait for the stock to show more evidence that share prices are actually establishing a sustainable base.

MSTR: Critical Downside Price Levels

MSTR: Critical Downside Price Levels (Income Generator via TradingView)

From there, I would view a further downside break of the $156.70 level (which is the 50% retracement of the aforementioned price move) as more of a significant warning sign, suggesting that this most recent uptrend is actually in significant danger of developing a more heavily bearish reversal. However, the stochastic indicator reading has recently rolled over out of overbought territory, so it seems unlikely at the moment that this negative outlook is going to be the most probable outcome.

MSTR: Daily Stochastic Indicator Readings

MSTR: Daily Stochastic Indicator Readings (Income Generator via TradingView)

Finally, I think it is constructive to look at the indicator readings on the daily time frames because here we can see that MSTR is on the verge of moving out of overbought territory. Of course, we are not quite there yet, but once these overbought conditions resolve themselves, I think it will be much easier for the stock to form a sustainable base and make another push above the $200 mark. For the most part, I try not to focus on psychological price levels unless there are specific chart signals that add validity to those price regions. In this case, the formation of a triple-top resistance zone right below this level suggests that further moves to the topside could be quite forceful if this resistance is broken. As long as investors understand the broader history of this stock (and its prior tendencies in failing to maintain significant rallies), I do think that MSTR is a stock to consider because we might be on the verge of a major bullish breakout. As always, it will be critically important to monitor trend activity in BTC-USD, as well. Any sizable bearish trending move in this cryptocurrency pair should weigh heavily on MSTR and potentially send the stock through my reversal pivot point at $156.70.

Source：https://seekingalpha.com/article/4726176-microstrategy-major-breakout-ahead-rating-upgrade-mstr-stock