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

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

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

BeInCrypto reported on May 5 (local time) that Strategy's stock 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, primarily due to large impairment losses resulting 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 will be broken. BeInCrypto analyzed that while Strategy's stock has risen to the vicinity of the neckline of the inverse head and shoulders pattern, a long upper wick also appeared, indicating short-term fatigue. This pattern is typically interpreted as a bullish signal when the neckline is broken with an increase in trading volume. However, the trading volume has actually decreased during the recent stock rise, which was pointed out as a factor weakening the reliability of the breakout.

The options market sentiment has clearly shifted. Prior to 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 compared to put options, showing that the market has shifted from defensive positioning against declines to betting on increases. Implied volatility for options also reached 74.42%, indicating that investors are anticipating significant price fluctuations after the earnings announcement.

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

At the heart of the bullish scenario are 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 Q1 earnings. However, Michael Saylor's halt in Bitcoin purchases ahead of the earnings announcement left a cautious note in the market. BeInCrypto stated that this could be interpreted as cash preservation, capital restructuring, or a 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. A clear break above this level would open up room for further upside, recovering the 200-day exponential moving average, and reaching the Fibonacci 0.618 retracement level of $205.29, the 0.786 retracement level of $218.69, and the 1.0 retracement level of $235.77. The final target price for the inverse head and shoulders pattern is set at $338.91.

Conversely, if the daily candle closes below $186.46, the breakout attempt could be invalidated. In this case, the stock could retrace to the Fibonacci 0.236 retracement level of $174.81. BeInCrypto analyzed that if a break above $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 invalidated.

Ultimately, Strategy's stock movement in May depends on the Q1 earnings announcement and whether the neckline is broken. The options market has leaned bullish, but decreased trading volume and Saylor's halt in Bitcoin purchases remain cautionary factors. Depending on how much Bitcoin's unrealized gains are reflected in the earnings, 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.*