Michael Saylor’s MSTR stock price rose by over 2% on Monday as the crypto market rebounded. However, these gains could be short-lived as Bitcoin resumed its crash, a sign that Monday’s surge was a dead-cat bounce.
MSTR stock price technicals points to a steeper crash
The daily chart reveals that the MicroStrategy stock price remains on edge despite falling by 36% from its highest point this year. It has moved from a high of $456 in June to $292 today.
The MSTR stock price has moved below the important resistance level at $360, its lowest point in May. It initially dropped below that level in August and then retested it in September. A break-and-retest pattern is one of the most common bearish continuation signs.
The Strategy stock price has remained below the 50-day and 100-day Exponential Moving Averages (EMA). It has also moved between the lower and middle sides of the Bollinger Bands pattern.
Worse, the stock has formed a death cross pattern, which happens when the 50 and 200-day moving averages cross each other when facing downwards.
The Trend Strength Index (TSI) has continued falling and is now nearing the oversold level. Therefore, the most likely scenario is where the stock continues falling in the coming months. If this happens, there is a risk that the MSTR stock price will drop to the key support level at $200.
The bearish MSTR stock price forecast will become invalid if it moves above the key resistance level at $360.
Why MicroStrategy stock is at risk
There are a few reasons why the MSTR stock price is at risk of further downside. One of the key risks is that the premium that the company has long enjoyed is falling quickly. The mNAV multiple has dropped from 3.3 in November last year to 1.2 today.
This falling mNAV is risky for the company as it means that it will struggle to raise capital in the near term. Historically, the company had a policy that barred it from selling shares when the multiple was below 2.5.
Saylor changed this policy in August as the NAV figure continued falling. As a result, most of the Bitcoin purchases are now being funded by its ATM capital raising mechanism, that have led to a substantial dilution of its shareholders.
Another key risk is that Bitcoin price is not doing well. As the chart below shows, the coin has formed a double-top pattern on the weekly and daily charts. This means that it may continue falling, potentially to $100,000 and below.
In line with the first point, there are signs that most companies in the Bitcoin treasury industry are losing their NAV multiples. Japan’s Metaplanet stock price has crashed, bringing its EV NAV multiple to below 1.
There are also signs that demand for MSTR and other Bitcoin treasury companies is fading. A closer look at most of the companies in the industry are plunging. This includes popular names like Trump Media and GameStop. One reason for this is that most companies that have raised their treasuries were struggling and saw the approach as an easy way out.
Therefore, the most likely scenario is where the MSTR stock price continues falling this year and then rebounds as investors buy the dip.
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