Top 4 Contrarian Reasons MSTR Stock is Ripe for a ~20% Surge

The MSTR stock price remained in a bear market after plunging by almost 60% from its highest point this year. While this freefall may continue, some potential technical and fundamental catalysts may lead to a ~20% surge in the near term.

MSTR Stock Price Has Some Contrarian Technicals

The daily chart revealed that the MSTR share price has been in a freefall since July, when it peaked at $458. As of press time, it was down 60% from that mark, hovering near its lowest level since October last year.

Most technicals suggest that the stock has more downside to go in the near term. For one, it formed a death cross pattern and remained below the Ichimoku cloud and the Supertrend indicators. The Average Directional Index (ADX) also pointed upwards, a sign that the trend was strengthening.

On the other hand, some contrarian catalysts may push its price higher in the coming weeks. One of them was the fact that MicroStrategy stock became highly oversold, with the Relative Strength Index (RSI) moving to the oversold level. The MACD and other top oscillators were at their lowest levels this year.

In some instances, investors move in and buy highly oversold assets because they believe they are increasingly cheap.

The other technical reason why the MSTR stock price may rebound is that the stock recently crashed below the important support level at $233, which was its lowest level on February 28, March 11, and April 9. In most cases, assets rebound and retest a crucial level and then resume the downtrend. If this happens, it will need to jump by ~20% from the current level.

MicroStrategy Stock is Undervalued

The other potential catalyst for the MSTR stock is that it has become a bargain. The most basic way to value the company is to compare its Bitcoin holdings and the current market valuation.

In this case, the company’s Bitcoin holdings are valued at over $59 billion, while its market capitalization stood at $56 billion, giving it an mNAV of 0.94. The mNAV based on the enterprise value (EV) has moved to 1.193 from the all-time high of over 10.

Therefore, there is a possibility that bargain hunters will come in and buy the stock as they expect a potential rebound in the coming months.

Strategy Could Go Through a Short-Squeeze

Another reason why the MSTR stock price may rebound soon is that it is a highly shorted company with a short interest of nearly 10%.

In recent years, highly shorted companies have become vulnerable to short squeezes. A short squeeze is a situation in which a highly shorted company experiences a rebound, resulting in substantial losses for short-sellers.

These short squeezes became more prominent during the Covid pandemic when companies like GameStop, AMC, and Bed Bath & Beyond surged, leading to substantial losses among short-sellers.

Some highly shorted companies like GoPro and OpenDoor have surged this year, catching many short-sellers off guard. While not guaranteed, there is a likelihood that the stock will undergo a short squeeze as the short interest increases.

Bitcoin Price Could Go Through a Relief Rally

The other potential catalyst for the MSTR stock price was that the Bitcoin price could go through a relief rally as it became highly oversold. Its Relative Strength Index (RSI) had fallen to the oversold level of 27, and the Commodity Channel Index (CCI) was moving to the extreme zone.

Most importantly, Bitcoin has now moved to the target price of the double-top pattern at $124,800. The distance between the double-top and the neckline was about 14.8%. Measuring the same distance from the neckline gives it a target of $91,900.

Therefore, there is a likelihood that Bitcoin price will rebuild, which would boost treasury companies like Strategy.