MSTR Stock Forecast as Michael Saylor's Strategy Sells Bitcoin Again

Key Insights

• MSTR stock has formed a bearish pennant pattern on the daily chart.
• Strategy continued selling its Bitcoin last week.
• It also diluted its shareholders by selling shares worth over $290 million.

The MSTR stock price dropped by over 1% in the premarket session as investors reacted to the Bitcoin weakness. It also dropped slightly after Strategy continued selling its Bitcoin in a bid to increase its cash reserves. It fell to $92, down by 52% from its highest point this year.

Michael Saylor’s Strategy has come under intense pressure this year as the crypto winter has accelerated. Bitcoin has dropped from a record high of $126,300 to $62,000 today.

This crypto winter has had a major impact on its business, especially because of its decision to issue preferred stocks like STRC, STRK, STRF, and STRD. While these funds gave it capital to buy Bitcoin, they also mandated it to pay dividends.

For an ordinary company, these dividend payouts are not a big deal since they have free cash flow that covers them. Strategy is different because its main software business does not make a lot of money. Bitcoin, its main asset, does not generate any income. This is a different scenario from BitMine, which holds Ethereum and pays a monthly staking reward.

As a result, fears that Strategy will be unable to pay its dividends pushed the preferred stocks to drop sharply from par. These fears intensified after the company spent $1.5 billion on debt repayment.

To prevent the bloodbath, the company halted its Bitcoin buying and started to accumulate cash. It has raised millions of dollars by diluting its shareholders by selling the stock.

Most notably, the company ended its vow to never sell Bitcoin. It continued this approach last week as it sold 1,638 coins at an average price of $63,957. It raised $104 million selling these coins and now holds 842,138 coins.

Most importantly, the ongoing Bitcoin sales are happening at a loss since the average purchase price was $75,419. In addition to these sales, the company continued diluting its shareholders.

It sold shares worth $290 million as part of its ATM and used $28.9 million of these proceeds to repurchase STRC shares. Its STRC repurchases are meant to push its stock back to par level.

MSTR stock has also dropped as Bitcoin remained under pressure. BTC dropped to $62,000 on Monday, and this retreat may continue as demand for its ETFs wanes. Data shows that spot BTC ETFs shed over $265 million in assets on Friday, bringing the weekly outflows to over $65 million.

At the same time, there are fears that the Federal Reserve will maintain a hawkish tone as inflation rises. Gasoline prices jumped to $4 a gallon last week, meaning that the headline CPI rose in July.

Meanwhile, investors are concerned about its elevated losses. In its earnings report last week, the company made an $8.6 billion loss in the second quarter, and this trend may continue if Bitcoin continues falling.

The daily chart shows that the MSTR share price has remained inside a narrow range in the past five weeks. It has remained slightly below the resistance level of $100.

The stock has formed a rising wedge pattern, which is part of the bearish pennant pattern. This pattern is one of the riskiest signs as it usually signals that the initial trend will continue.

The stock remains below the 100-day Exponential Moving Average (EMA). Also, the Relative Strength Index (RSI) has formed a rising wedge pattern. Therefore, the fact that it is below these moving averages and is forming a bearish pennant pattern, suggests that it will have a strong bearish breakout this week.

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