MW Why MicroStrategy's stock chart now looks so bearish

By Tomi Kilgore

The bitcoin play has fallen below a key support zone to trade at the lowest prices seen since before Trump's election win

The selloff in MicroStrategy Inc.'s stock on Tuesday is technically very significant, as it has effectively knocked down the bullish foundation built after the presidential election.

Shares of the software company $(MSTR.AU)$ and play on bitcoin (BTCUSD), which is now doing business as Strategy, were sinking 10.2% in afternoon trading toward the lowest close since Nov. 5, 2024 - Election Day.

It was Donald Trump's win that night that had triggered a breakout rally in the stock, as investors cheered a more cryptocurrency-friendly administration. Bitcoin was also slumping Tuesday, toward its lowest level since mid-November.

But Strategy's stock chart suggests that investor optimism is now all but gone, and bears appear to have taken command.

The stock has dropped below a key support zone, defined by the breakaway gap in the charts between the Nov. 8 intraday high of $279.38 and the Nov. 11 intraday low of $293.30. The stock closed up 25.7% at $340 on Nov. 11, the biggest gain in more than three years.

For chart watchers, gaps, or areas where the stock didn't trade during regular-session hours, are important because they depict a surprise move in a certain direction, leaving those betting on a move in the opposite direction stranded, without an opportunity to trade out of it.

That's why an upside gap, like the one created on Nov. 11, often provides support when revisited, because it gives those who bet on declines, which would have covered if given the opportunity, the chance to finally do so.

And that support zone passed its first test, as it had stopped a late-2024 selloff in its tracks.

In addition, the break of support also highlights another key failure - the inability of the stock to use the early January bounce-off to make a higher high.

The pattern created by that lower high, followed by Tuesday's lower low, is basically what defines a downtrend.

Also read: Don't dis the Dow Theory just because it's over 100 years old.

These bearish signals didn't appear in a vacuum. They actually confirm that the first warning sign flashed by the chart was the big "key reversal" pattern that popped up on Nov. 21, the day after it closed at a record high.

Although the stock tends to trade like bitcoin, the stock could never recover the losses suffered by the reversal, while bitcoin kept rallying, and didn't see its record close until Dec. 17.

What's more, the stock's Relative Strength Index, an underlying measure of momentum, fell below 30 on Tuesday for the first time since early March 2023.

RSI readings technically suggest the stock is oversold, meaning it has fallen so far and so fast, relative to its historical behavior, that sellers likely need a breather before they can resume selling.

While oversold readings can lead to a short-term bounce, in practice, the ability to become oversold suggests an underlying weakness.

For Strategy's stock, the last time it was consistently dipping into oversold territory was during its two-year-long downtrend that started after the February 2021 peak.

During the subsequent uptrend, RSI didn't fall below 30, not even when the stock tumbled 46% from late April 2024 to early May, or the 39% drop from the Nov. 21 record close to the Dec. 31 pullback low.

So while the current oversold reading might provide bulls with a short-term reprieve, there's good reason to believe it won't last.

So what do these bearish readings mean? Bears could be targeting a full retracement of the rally off the four-month closing low of $114.30 hit on Sept. 6.

In the meantime, the broken support zone, up to $293.30, has now likely morphed into resistance.

For bulls to regain command of the trend, the stock would have to break the pattern of lower highs and lower lows, by getting above the Jan. 17 closing high of $396.50.

-Tomi Kilgore

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February 25, 2025 15:45 ET (20:45 GMT)

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