"Explodes when earnings are released"...Strategy, $338 breakthrough scenario after 47% rebound

▲ Strategy (MSTR), Bitcoin (BTC)/ChatGPT generated image

Strategy (MSTR) stock is forming a bullish reversal pattern ahead of its Q1 earnings release, testing the possibility of further breakthroughs in May.

BeInCrypto reported on May 5 (local time) that Strategy's stock price has risen approximately 47% from its February low and is awaiting its Q1 earnings announcement. On February 5, the company announced a loss of $42.93 per share in its Q4 earnings due to large impairment losses from the decline in Bitcoin (BTC) prices. Since then, the stock has recovered from its low, forming a bullish reversal structure in the shape of an inverse head and shoulders.

The key on the chart is whether the neckline is broken. BeInCrypto analyzed that while Strategy's stock price rose near the neckline of the inverse head and shoulders pattern, a long upper wick appeared, indicating short-term fatigue. This pattern is typically interpreted as a bullish signal when the neckline is broken with increased trading volume. However, it was pointed out that trading volume has actually decreased during the recent stock price increase, weakening the reliability of the breakthrough.

The mood in the options market has clearly shifted. Before the Q4 earnings announcement on February 5, the put-call volume ratio was 1.66, indicating a dominant defensive position. However, ahead of this Q1 earnings announcement, this ratio has fallen to 0.60. This means that call option purchases have significantly increased more than put options, showing that the market has shifted from downside protection to betting on upside. The implied volatility of options also reached 74.42%, indicating that investors are anticipating significant price fluctuations after the earnings announcement.

Wall Street's upward revision of target prices also supports the bullish argument. According to BeInCrypto, B. Riley raised Strategy's target price from $188 to $200 on April 29, maintaining a "buy" rating. Cantor Fitzgerald also raised its target price from $192 to $212 on April 21, maintaining a "buy" rating.

At the heart of the bullish scenario is Bitcoin's unrealized gains and losses. Strategy holds 818,334 BTC at an average price of $75,537. With Bitcoin exceeding $80,000, unrealized gains are estimated at approximately $3.7 billion, which was cited as a factor that could reverse the Q4 impairment losses in the Q1 earnings. However, Michael Saylor's halt of Bitcoin purchases ahead of the earnings announcement left a cautious note in the market. BeInCrypto reported that this could be interpreted as cash preservation, capital restructuring, or burden on the financing model.

Technical price levels were presented as criteria to determine the direction of the earnings reaction. The neckline is located at $186.46, and a clear breakthrough of this level would open up room for upside to $205.29 (Fibonacci 0.618 retracement level), $218.69 (0.786 retracement level), and $235.77 (1.0 retracement level), along with a recovery of the 200-day exponential moving average. The final target price for the inverse head and shoulders pattern was set at $338.91.

Conversely, if the daily candle closes below $186.46, the breakthrough attempt could be invalidated. In this case, the stock price could retrace to $174.81 (Fibonacci 0.236 retracement level). BeInCrypto analyzed that if a breakthrough of $186.46 is confirmed, an upward path to $218.69 would open up in the coming weeks, but if it falls below $174.81, the pattern itself could be damaged.

Ultimately, Strategy's stock performance in May depends on its Q1 earnings announcement and whether the neckline is broken. The options market has tilted bullish, but decreasing trading volume and Saylor's halt of Bitcoin purchases remain as challenging factors. Depending on how much the earnings reflect Bitcoin's unrealized gains, Strategy's stock is expected to either complete its bullish pattern or be pushed back into a correction phase.

*Disclaimer: This article is for investment reference only and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*